Autotech startup Nullmax said on Tuesday that its latest generation of autonomous driving hardware and software package, allowing cars to navigate complex urban environments autonomously with features such as lane changing, will cost users as little as “several thousand RMB.” 

Why it matters: Shanghai and Fremont-based Nullmax is among the few players in the self-driving vehicle space claiming that cars will be able to function by themselves in urban scenarios without maps and lidar. Instead, the company said artificial intelligence models can be used to enable cars to navigate from points A to B.

• This makes its system even more cost-competitive on the Chinese market compared with Tesla’s Full Self-Driving (FSD) software, chief executive Xu Lei told reporters in Shanghai. Tesla has reportedly partnered with Baidu to leverage the latter’s lane-level navigation and standard definition mapping services, as part of its push to localize its most advanced driver-assistance software (ADAS) in the country.

Details: Xu told a press conference that his company is advocating a “pure vision” and “end-to-end” approach, as Tesla has been doing and many are following its lead, which involves deep neural networks, using cameras only to perform autonomous driving functions (our translation).

• The car could complete the highway on-ramp to off-ramp maneuver and drive through a construction zone in Chinese urban areas with affordable hardware of 7-11 cameras and a computing platform that can handle roughly 100 trillion operations per second (or TOPS), according to Nullmax.
• Xu expects some car models equipped with the technology to come to market in 2025, without saying more. Nullmax, with roughly 300 scientists and engineers, has been developing more safety-based ADAS functions for domestic automakers SAIC, and Chery, among others, TechNode has learned.
• Cars powered by Nullmax’s tech have traveled a combined 10 million kilometers (6.2 million miles). Xu added more actual driving data is required to provide cars with point-to-point navigation on city streets, while the company is training the ADAS system via simulation with AI-generated data.

Context: Chinese EV startups led by NIO, Xpeng Motors, and Li Auto have been ramping up efforts to transition from “rule-based” designs to an “end-to-end” autonomous driving method. Meanwhile, traditional car manufacturers are tapping into the power of AI by working with tech giants such as Huawei and NVIDIA, as well as startup unicorns like Horizon Robotics and Momenta.

• “What we see in the future is that the (AI-defined) AV stack will become an end-to-end model and will be trained in the cloud with massive data. More importantly, it will be validated in the cloud with simulation capabilities as well,” said Wu Xinzhou, NVIDIA’s vice president of automotive at its annual developer conference GTC in March.
• The US chipmaker in late 2021 released a system called “Omniverse Replicator” to facilitate the training of autonomous vehicles in the virtual world, Reuters reported. Chinese major EV makers, including BYD and NIO, are building their ADAS upon its DRIVE Orin computers, each of which offers 254 TOPS of performance.
• Nullmax was co-founded in 2016 by Xu Lei and Justin Song, both of whom spent time at Tesla. Xu worked on Tesla’s Autopilot computer vision team in 2015 and 2016, after leaving a senior engineering role at Qualcomm, while Song was responsible for engineering the Tesla Autopilot and car infotainment system from 2012 to 2015, according to their LinkedIn profiles.

READ MORE: Former Tesla engineer shares thoughts on end-to-end autonomous driving at WAIC 2024

Editor’s note: ‘Landing AI’ is a series of special reports focusing on the field of Artificial Intelligence curated by TechNode. By investigating the development of AI landing in China and the behind-the-scenes stories of the industry, we’re going to dive deeper into everything that’s possible under the new wave of AI.

A former Tesla engineer, now head of autonomous driving at China’s Chery, on July 4 shared her outlook on Chinese automakers’ future capacity to scale autonomous driving technology, as Tesla leads the way with its mass data and sophisticated artificial intelligence models.

Domestic companies are roughly 1.5 to 2 years behind Tesla in developing “end-to-end neural network” technology for autonomous driving. The recent release of Tesla’s Full Self-Driving (FSD) software v12 marked “a great leap forward” in applicability and user experience (our translation) according to Gu Junli, chief executive of Chery-affiliated ZDrive.ai, and a former senior staff machine learning engineer at Tesla, speaking at this year’s World Artificial Intelligence Conference (WAIC) in Shanghai.

Gu said she expects Chinese players to partially replace modules of advanced driver assistance systems (ADAS) with data-driven, rather than rule-based, neural networks by 2025. This shift comes as car companies ramp up efforts to collect fresh, multiformat data to improve models with more computing power. However, there would not be a single large neural net, where the core capability of Tesla’s latest software is built, for production cars until 2026-2027 in China, Gu added. Tesla in April announced its FSD users had traveled a cumulative 1.2 billion miles.

Recent figures from the community-run FSD Community tracker show Tesla’s remarkable progress in refining its autonomous driving features. The latest FSD v12.3.6 version can drive 372 miles (599 kilometers) between critical disengagements, compared with just a few miles it reportedly achieved two years ago, according to crowdsourced data released by the website in May. Tesla chief executive Elon Musk later forecasted on X “a major improvement in MPI (miles per intervention)” with the release of the FSD v12.5 in late June.

“This means the system has met the requirements for most users on normal daily commutes,” said Gu.

Several Chinese early movers are working to achieve a partial end-to-end pipeline for enabling their advanced driving features, hoping to gradually transition to fully end-to-end algorithms. On July 5, Li Auto revealed details about what it called “China’s first single one model” behind its Navigation on ADAS (NOA) functions. The Chinese electric vehicle startup claimed this model would use raw sensor input to generate vehicle motion plans. However, unlike Tesla’s solution of “basically photons in and controls out,” as described by Musk, it still relies on pre-defined, explicitly coded rules to produce control actions as output.

Meanwhile, other peers, such as Xpeng Motors and Huawei, have been taking partial end-to-end approaches, using separate neural networks for multiple tasks such as perception, planning, and action, while many are still struggling to improve results. According to a recent survey compiled by China’s Gaogong Industry Institute, Chinese users typically take the controls at least 1-2 times per 100 kilometers (62 miles) as their cars’ ADAS functions do not react appropriately in urban scenarios. Tesla may find issues in localizing its ADAS software due to China’s complicated traffic conditions, said Xpeng’s head of autonomous driving, TechNode reported.

Gu mentioned Chery’s plan to launch the advanced city NOA function for some premium models in the first quarter of next year, while its single deep learning network could go live in 2026. The Chinese auto major, which sold nearly 1.9 million cars last year, plans to integrate Level 2 ADAS systems into as many as 500,000 new cars sold this year, including 150,000 units for overseas markets. Based in the eastern Chinese city of Wuhu, Chery had a relatively late start in autonomous driving, with ZDrive.ai being set up early last year.  

Despite Tesla’s leading position with its training wheels finally taken off, Gu envisioned that Chinese companies would contribute to a wider and more personalized adoption of self-driving technology worldwide. State-owned Chery in April reached a joint venture deal with Spain’s EV Motors to produce cars at a former Nissan plant in Barcelona later this year, Reuters reported. Meanwhile, customers from some overseas markets could access Xpeng’s XNGP ADAS capabilities as early as next year, president Brian Gu told investors during an earnings call in May.

READ MORE: Chinese companies take on Tesla’s Full Self-Driving with non-lidar approach, end-to-end AI

Chinese carmakers Geely, NIO, and Huawei-backed Aito on Monday reported record deliveries of electric vehicles for June as the country’s EV segment recovery gathers momentum. Meanwhile, Huawei and Li Auto are emerging as the leaders among the newer players, despite BYD and Tesla still enjoying a near-duopoly position in the world’s largest EV market.

Why it matters: The rally, which contrasts with overall flat sales in the market, comes amid a temporary cooling-off period for the industry-wide price war on electric autos in the country. It also reflects companies’ sprints to make deliveries by the end of the first half of 2024. A new wave of consolidation and some reshuffling is also speeding up within the sector, with fewer smaller players staying in the game and some legacy giants falling behind.

Details: Li Auto topped the ranking among young EV makers by delivering 47,774 cars to customers in June, up 36.4% from a month earlier, as sales of its most affordable extended-range hybrid crossover the L6 started to ramp up after its April launch. Chief executive Li Xiang also attributed the sales recovery to improved efficiency, as the company restructured its sales and delivery teams recently following a failed launch of its first all-electric model, the Mega, in March.

• Huawei continues to put pressure on Li Auto despite delivering 1,633 fewer vehicles than the Nasdaq-listed EV startup in June. The Chinese technology giant said its Harmony Intelligent Mobility Alliance (HIMA), which for now includes Aito and Luxeed brands only, delivered 194,207 vehicles from January to June, which is more than the 188,981 units posted by Li Auto. Huawei will launch a new premium brand called Stelato with partner BAIC next month after it began taking orders for the first model, the S9, on May 31.
• Among traditional competitors, Geely set a new record for EV sales of 65,959 units in June. In particular, deliveries of its mainstream luxury brand Zeekr surpassed the threshold of 20,000 units for the first time since its inception. Geely management on Tuesday announced it was raising this year’s sales goal by 5% to 2 million units, while Zeekr’s annual outlook of selling 230,000 units remains on track. Lynk & Co sold 24,439 cars last month, 62% of which were EVs, a record high percentage for the Geely-Volvo joint brand.
• Changan’s EV sales rose 61% year-on-year and 14.7% month-on-month last month to roughly ​​64,000 units, of which 16,659 were Deepal-branded EVs. The automaker said it received more than 15,000 refundable orders for its first off-road sports utility vehicle, the Deepal G318, priced from RMB 175,900 ($24,186), five days after it was launched on June 13. Chery’s EV sales surged 181.5% to 180,947 units during the first half of this year, thanks to strong overseas demand for its budget cars, such as the QQ Ice Cream and Little Ant.
• Both NIO and Leapmotor reached the 20,000-unit milestone in June. NIO has sustained the growth momentum that it’s seen since April and is demonstrating the potential to deliver 30,000 cars a month once its first mainstream car goes on sale in September. Leapmotor reached the milestone for the first time last month, as the Hong Kong-listed firm now positions itself as a cheaper alternative to Li Auto. Smartphone giant Xiaomi handed over more than 10,000 SU7 sedans to customers in its third delivery month.
• Meanwhile, Tesla is feeling the heat. Sales of its China-made vehicles declined 10.5% year-on-year to 426,623 units during the first half of this year, including exports, according to figures released by the China Passenger Car Association (CPCA). The US automaker said on Tuesday it delivered 443,956 vehicles in the three months to June 30, a smaller-than-expected 5% drop from a year earlier and up 14.8% from the previous quarter, sending shares up more than 10%, Reuters reported.

Context: China’s retail passenger EV sales volume is expected to reach 864,000 units in June, representing a 30% growth from the same month last year and a 6% rise from May, while overall car sales declined 8% year-on-year, the CPCA estimated on Wednesday.

READ MORE: China’s EV sales recovery picks up pace in May, helped by promotions

As Tesla’s most advanced driver assistance software (ADAS) is becoming an immediate threat due to its impending arrival in China, major Chinese electric vehicle makers and auto tech companies are hurrying to pivot their strategies towards a more pragmatic yet challenging approach to developing similar offerings. Although Tesla’s rivals have for years been looking to cut out expensive components and master the newest artificial intelligence models, the game seems to be different this time.

Both NIO and Xpeng Motors are now embracing the so-called computer vision approach, championed by Tesla, hoping their upcoming models will achieve human-like downtown driving in cities via the use of fitted cameras and radar, rather than more expensive laser sensor units. Sinpro.ai, a supplier to NIO of ultra-high-resolution four-dimensional (4D) imaging radar, said it is prepared for delivery later this year with an annual capacity of 800,000 units. Tesla has reportedly replaced radar sensors on some models after years of attempting to remove them.

“It will be a difficult task for Tesla’s Full Self-Driving (FSD) software to deal with scenarios in China where it is common that a large number of electric scooters are usually ahead in the same lane with motor vehicles,” Li Liyun, vice president of autonomous driving at Xpeng, wrote on June 27 on Chinese Twitter-like microblogging platform Weibo. Xpeng is planning to remove lidar from its upcoming sedan, scheduled for launch later this year, local media has reported.

Xpeng and NIO are also following Tesla’s suit by transitioning to an “end-to-end” autonomous driving method after using modular-based neural networks that are heavily reliant on explicit coding. Meanwhile, more traditional automakers are turning to domestic tech companies for help, such as Huawei and DJI, to catch up with the latest AI trend. Despite big challenges pressuring the industry, some early movers have the potential to compete with the US pioneer, Liu Guanghao, partner at Shanghai-based venture capital firm Befor Capital, told TechNode.

READ MORE: China opens door wider to Tesla as local giants disrupt the EV sector with AI-defined vehicles

Vision-based approach

A break from previous strategies of using expensive chips and sensors to enable ADAS capabilities, the latest approach centers on reducing the cost of components in hopes of making more room for further price cuts. Many now have their eyes on the use of radar, ditched by Tesla in 2021 due to limitations in identifying stationary objects with low image resolution, as some parts makers now said it is coming close to lidar in terms of performance – but at a lower price tag.

“There is more overlap between lidar and our sixth-generation radar systems as we significantly improve the resolution,” Juergen Brandl, Head of Market China, Business Area Autonomous Mobility at Continental Group, told TechNode. “Radar could soon see through [objects] but lidar has some problems with the distance especially in difficult situations like fog and rain.” The German firm’s newest front-facing radar boasts a detection distance of 280 and 140 meters (174 and 87 miles) for vehicles and slow-walking pedestrians, respectively.

Advanced radar solutions like this also create three-dimensional point cloud datasets like lidars, helping automakers and developers move towards fully end-to-end models with raw data collection from multiple sensors to train their self-driving systems. “We can play a big role in the development of Level 2 plus ADAS systems in China,” Brandl said, adding that the company’s product is below the price of a lidar unit with “very good“ output in terms of point cloud data.

Some disagree however, saying the technology is still at an early stage. Production of Continental’s latest-gen radar started early this year and the company began delivering the world’s first 4D radar in 2021, which detects an object’s vertical information in addition to distance, direction, and relative velocity, generating more dense point clouds than a contentional radar. Meanwhile, major Chinese lidar makers have consistently enhanced the performance of their products and lowered the prices to just over RMB 1,000 ($137.6) per unit in recent years.

The key is whether 3D/4D radar could prove to be a more “cost competitive” option compared with lidar, said Liu. “I believe both [radar and lidar] have their special advantages and disadvantages,” Brandl said. ”I think time or the market will tell whether we need both of them or one solution only.”

Either way, prospects for early players are bright. Momenta, a self-driving car company backed by General Motors and Toyota, expects the bill of materials, or total cost of components, for the City NOA (Navigation on ADAS) function to be slashed to RMB 4,000-5,000 from the current RMB 7,000-10,000 in the next two years. The intent is to survive an unprecedented price war in China that has been ongoing for more than a year.

End-to-end AI

Chinese carmakers used to brag about their coverage of cities where their assisted driving software is said to enable cars to handle on-ramp to off-ramp driving, automatic highway lane changing, and congested streets. However, many are now pivoting their focus to provide a more human-like driving experience and a full end-to-end AI model is now seen as key to winning the battle.

Described by Tesla chief executive Elon Musk as “basically photons in and controls out,” such end-to-end neural networks play an integral role in a vehicle’s decision-making process, taking raw sensor data as input and producing control actions as output. This contrasts with the conventional approaches that see each functionality, from perception to planning and action, developed individually using rule-based designs, which are often inadequate  in addressing the vast number of scenarios that occur on the road, a team of researchers said in a recent report.

The result is that people still feel their cars pilot themselves inhumanly even when kitted out with some of the most cutting-edge ADAS on the market, partly because human driving behavior tends to be consistent rather than discrete. It is very difficult for the current AV (autonomous vehicle) stack to make coherent, long-term decisions, said Wu Xinzhou, Nvidia’s vice president of automotive at its annual developer conference GTC in March.

Recent surveys have shown automakers that customers are generally dissatisfied with existing ADAS functions. Nearly half of respondents take the controls 1-2 times per 100 kilometers (62 miles) as the city NOA functions do not react appropriately, while others make more frequent interventions, according to a recent survey compiled by China’s Gaogong Industry Institute. “When the driver has to interfere pretty often, then you cannot say this is autonomous driving,” said Brandl.

Xpeng is aiming for less than one intervention per 1,000 kilometers in major traffic areas in China, CEO He Xiaopeng announced early this year, without giving a timeframe. This was followed by a new software update for its XNGP ADAS in May enhanced by the first end-to-end AI model for production vehicles in China, according to the EV maker. NIO reshuffled its autonomous driving department recently, rolling up its perception as well as planning and control teams into a single group with a focus on new AI models, Chinese media outlet LatePost reported on June 19.

It requires huge amounts of data, for example, millions of video clips, to train AI systems, as well as deep pockets and access to AI chips. Musk told investors in April that his company will increase the number of Nvidia’s flagship AI processors it uses from 35,000 to 85,000 by the end of this year. He wrote in a post on X earlier that month that the investment in training computers, gigantic data pipelines, and video storage will be well over $10 billion cumulatively this year.

Such major investment and effort is not something all companies can handle however. “It would be so hard for most traditional automakers to do this by themselves. The best way is to pick a supplier,” Liu said.

The entry of Tesla’s FSD into China may feel like a new challenge therefore, but it may also coincide with a new era of partnerships around self-driving technologies.

Chinese tech giant Huawei opened the Huawei Developer Conference (HDC) 2024 in the city of Dongguan in southern China on June 21, by launching the new Beta version HarmonyOS NEXT, an all-scenario operating system for developers. The HarmonyOS ecosystem covers a diverse range of products including smartphones, smart wearables, tablets, headphones, smart driving vehicles, and smart home solutions.

“HarmonyOS NEXT is a fully self-developed, independently controllable operating system originating from China,” said Yu Chengdong, Huawei’s Consumer business group chair, at the event.

Why it matters: HarmonyOS NEXT is entirely independent of Google’s Android system. The kernel of HarmonyOS NEXT, the most critical part of the operating system, has cut its ties with  the Linux system altogether, the company professed.

Details: HarmonyOS NEXT Beta version has been promoted to developers since June 21 and will be released to consumers in August, according to Huawei. 

• Yu announced that the upcoming flagship smartphone Huawei Mate70 series will be the first device to come with HarmonyOS NEXT pre-installed in the third quarter, while the firm’s other smart devices are expected to come loaded with HarmonyOS NEXT version in the fourth quarter.
• HarmonyOS, released in August 2019, has undergone four generations of development. Currently, the Harmony ecosystem includes over 900 million devices, with 2.54 million developers actively contributing to its development, Huawei claimed. Additionally, the monthly volume of API (Application Programming Interface) calls for application development has reached 82.7 billion, the company said.
• HarmonyOS NEXT needs to strengthen its native app ecosystem due to the discontinuation of support for Android applications. HarmonyOS native applications have entered a full-scale sprint phase, with over 1,500 apps launched and 5,000 apps under development. 

Context: Huawei developed its own operating system, HarmonyOS, due to US sanctions restricting its access to Google’s Android that took hold in 2019. This move aimed to ensure independence and provide a viable alternative for its global smartphone market.

• In the first quarter of 2024, Huawei’s HarmonyOS surpassed Apple’s iOS, becoming the second largest operating system in the Chinese market after the Android system, according to market research firm Counterpoint Research. HarmonyOS’s market share in China has risen from 8% in the first quarter of 2023 to 17% in the same period of 2024, while iOS’s share decreased from 20% to 16%, the report said.

Chinese automaker Dongfeng Motor will introduce the first global model from its premium electric vehicle brand Voyah as early as the third quarter of this year, in what will be a direct challenge to Tesla’s best-selling crossover the Model Y, local media has reported.

The 100% electric compact sports utility vehicle (SUV) will feature Huawei’s vision-based approach to automated driving functions on urban streets. It will also be produced in a joint plant set up with Nissan, as fierce competition has put downward pressure on the Japanese firm, a regulatory filing has shown.

Why it matters: Stellantis and Nissan’s Chinese manufacturing partner expects the model to appeal to young families and drive sales in the country’s already crowded mainstream luxury EV segment, company sources told National Business Daily (in Chinese) on Tuesday.

Details: Sources added only full-electric variants will be on offer for the Zhiyin (知音), which loosely translates as “bosom buddies” in Chinese. This is in line with a filing that was published last month by China’s top industry regulator, which shows the car has six variants with battery options using two types of cathodes – more energy-dense nickel cobalt manganese (NCM) and cheaper lithium iron phosphate (LFP).

• The five-seater SUV measures 4.7 meters in length and 1.6 meters in height with a wheelbase of 2.9 meters, according to the registration filings released by China’s Ministry of Industry and Information Technology (MIIT). This is roughly the same size as the Tesla Model Y and smaller than the first model under the Voyah brand, the Free SUV.
• The all-wheel drive version will have a dual electric motor setup with both motors providing a power output of 160 kW, while other variants will be offered with either a 215 kW or 230 kW electric motor. All the variants have no lidar components, which are normally packaged on the car roof or near the bumpers to help the vehicle sense and interpret its surroundings.
• This means the new car will utilize the so-called “pure vision” approach, a strategy championed by Tesla, relying on cameras and artificial intelligence, rather than the more visible but more expensive laser sensor units, to achieve automated driving. Voyah announced in April at this year’s Beijing Auto Show its first global model would feature Huawei’s intelligent driving software and operating system HarmonyOS.
• Dongfeng will manufacture the car at its latest joint plant with Nissan, which opened last year in the central Chinese city of Wuhan with an annual capacity of 300,000 units. Nissan has been making several electric models including the Ariya with Dongfeng at this plant to date, although it sold less than 2,000 units of its second EV-only model in the country over the past six months, figures compiled by auto service platform Dongchedi showed.

Context: Nissan’s China joint venture with state-owned Dongfeng reported sales of 723,139 cars in the country last year, representing a 21.5% plunge from a year ago. The companies last November announced plans to export vehicles from China in 2025. The Japanese carmaker was also reportedly considering a 30% cut of its annual car output in China, along with peer Honda.

• Dongfeng’s Voyah in January announced a collaboration with Huawei to develop smart EVs. The brand has three models on sale and delivered 24,869 EVs, including all-electrics and plug-in hybrids, from January to May. The automaker’s off-road vehicle lineup Mengshi also works with Huawei.

Major Chinese automakers reported higher electric vehicle sales for May than in April, boosted by new government subsidies and the continued use of discounts to lure cost-conscious shoppers. Notably, NIO and Geely’s Zeekr were among the top-performing companies in the market, reporting their best-ever monthly deliveries.

Why it matters: The latest sales figures marked a swift turnaround for Chinese auto majors as they have been mostly grappling with weak consumer sentiment and intensifying competition in recent months.

• Demand was mainly boosted by China’s new subsidies encouraging consumers to trade in their old, less eco-friendly vehicles for new more energy-efficient ones. Meanwhile, several regional trade events have garnered more consumer attention than usual and boosted the appetite for new models, such as the recent Beijing Auto Show, wrote the China Passenger Car Association (CPCA) on May 29.

Details: Both NIO and Zeekr witnessed triple-digit growth year-on-year in May, with monthly deliveries reaching a record high.

• NIO said on June 1 that it surpassed the 20,000 vehicle sales limit last month for the second time since its inception, with its delivery numbers up 31.5% from April. The growth was driven by additional cash rebates totaling RMB 1 billion ($138 million), offered by the company in the name of car trade-ins since April 1, as well as a more than 25% price cut on its battery leasing program in March.
• Zeekr’s May deliveries reached 18,616, up 16% in a month, thanks to strong demand for its redesigned 001 shooting brake, of which sales surpassed 10,000 units for two months since delivery began on March 1. The Geely affiliate on May 10 became the fourth Chinese EV maker to go public in the US. Sales at its parent company also picked up momentum to 58,673 units over the month.
• Meanwhile, Li Auto saw its best-ever monthly sales this year in May, buoyed by a recent price reduction of up to RMB 30,000 on its existing vehicle lineup and the strong demand for the L6, which went on sale in mid-April. The company said the L6 accounted for more than 15,000 units out of its total deliveries in May and that it expected the number to surpass 20,000 units in June.
• Sales of Huawei-backed EVs took a slight hit in May while the Chinese tech giant was busy launching the redesigned versions of its existing Aito cars with partner Seres. Huawei’s Harmony Intelligent Mobility Alliance (HIMA), which currently consists of Aito and Luxeed series models, reported combined deliveries of 30,578 units last month, up 3.2% from April, with no breakdown.
• State-owned manufacturers Chery and GAC’s Aion also reported strong May sales, as both companies introduced big discounts in a move to respond to Beijing’s call to boost consumption. Chery on May 9 began selling the Sterra ET crossover at a competitive starting price of RMB 189,800.
• Xiaomi reported a 22.3% improvement in deliveries from April and aims to deliver more than 10,000 units starting in June.

Context: Retail sales of new energy passenger vehicles, which include all-electrics and plug-in hybrids, increased 27% year-on-year and 2% month-on-month to roughly 574,000 units during May 1-26 in China, when passenger car sales fell slightly to 1.2 million units, the CPCA figures showed.

• BYD, by far the dominant player in the market, on May 4 began offering subsidies of up to RMB 8,000 to consumers trading in their old cars. The auto giant on May 28 rolled out two new models with a driving range of 2,100 kilometers (1,305 miles), enabled by its latest plug-in hybrid technology.

Sales of Chinese electric vehicle makers Li Auto and Huawei-backed Aito dropped sharply in April as rivals Zeekr and NIO managed to post major improvements, in the latest indication of how competition in the country could be impacted by price cuts and new model launches. 

Why it matters: The latest sales figures in April showed the world’s largest EV market is slowly recovering from a sales slump due to an economic downturn and inclement weather early this year. Some potential EV buyers are still waiting on the sidelines for possible stimulus measures and for new cars shown at this year’s Beijing Auto Show to make it to market, experts say. 

READ MORE: Global carmakers take on Chinese giants in EV showdown at Beijing Auto Show 2024

Details: GAC’s Aion, Li Auto, and Huawei-backed Aito – which are among the biggest Chinese EV makers – all reported double-digit declines in EV deliveries in April from a month earlier. Huawei saw sales of Aito-branded EVs fall 21% last month, with monthly deliveries of the redesigned M7 falling to 10,896 units from its peak of nearly 30,000 units. Aion and Li Auto delivered 28,113 and 25,787 EVs in April, 13.6% and 11% fewer than a month earlier, respectively. 

• All three EV makers have launched new cars and ushered in steep price cuts for their existing models in order to maintain demand throughout 2024. Huawei said on Monday it had secured 11,000 reservations with non-refundable deposits for the Aito and Luxeed lineups over the recent five-day Labor Day holiday, while there were more than 41,000 pre-orders for Li Auto’s L6 range-extended hybrids between April 18 and May 5. GAC is currently putting the redesigned versions of its Aion V and Hyper HT battery crossovers on display in its showrooms nationwide. 
• In the meantime, Zeekr achieved record deliveries of 16,089 vehicles in April, up 24% month-on-month and 99% from a year earlier, mostly driven by a strong performance for its revamped 001 shooting brakes. NIO also saw sales hitting 15,620 vehicles, up from 11,866 a month earlier, as the company’s multiple sales pushes started to pay off. The EV startup has been offering a RMB 10,000 ($1,386) price reduction for those who trade in their old, gas-powered vehicles for a NIO car since the beginning of April. 
• While bringing attention to its rivals such as Zeekr and NIO for their similar offerings, Xiaomi posted impressive April sales to officially start its career as an electric car maker. The smartphone giant handed over 7,058 SU7 battery sedans to customers in its first delivery month and secured nearly 89,000 reservations with non-refundable deposits as of April 30. Chief executive Lei Jun expects the company to achieve an annual delivery target of 100,000 cars this year, with its production ramp-up already underway at its Beijing factory. 
• Xpeng Motors saw a slight recovery in April sales, delivering nearly 2,000 units of its first multi-purpose vehicle and bringing the total deliveries of the RMB 359,800 van to almost 10,000 units in the four months since its launch. The Volkswagen-backed EV maker has been under pressure from larger rivals, and declined to give detailed figures for the rest of its models. Sales of its G9, G6, and P7 models dipped to less than 1,700 units in March, figures compiled by Chinese auto service platform Dongchedi showed.

Context: China’s new energy vehicle sales in April are expected to be on par with March at roughly 720,000 units, partly because wait-and-see sentiment has grown among Chinese customers, the China Passenger Car Association said in an April 25 post.

READ MORE: ​ Explainer: How a new round of price cuts are reshaping China’s EV market ​

Global carmakers from Volkswagen to Toyota are introducing new models at the Beijing Auto Show 2024 with the help of Chinese tech companies in an effort to defend market share amid a major shift to electric vehicles led by local car giants. 

The biannual trade event, which on Thursday witnessed a return to pre-pandemic attendance levels after a brief pause in 2022, also represents another landmark moment for the Chinese EV sector where domestic players are once again on the offensive with an array of new models. A similar event in Shanghai a year ago reportedly prompted the industry’s legacy players to either increase their efforts or rethink their brands in order to adapt to the changes.

Below, TechNode provides a summary of some of the biggest releases from both international and Chinese automakers, including BYD, GAC, Geely, Honda, Toyota, and Volkswagen. There are also some notable updates from younger players such as Xiaomi, NIO, and Xpeng, which might give a clue as to where the most competitive EV market in the world is heading. 

BYD

China’s biggest EV maker on Thursday unveiled a higher-end variant of its Qin vehicle, the top-selling compact sedan in the country last year. The new car is scheduled for launch in the second quarter with an expected price tag of RMB 120,000 ($16,560). The Qin L measures 4.8 meters in length and spans a 2,790-millimeter-long wheelbase, placing it between the Qin Plus and the Han in terms of size. It features the company’s next-generation plug-in hybrid platform DM-i 5.0, which could suggest an improvement in range and fuel efficiency. The company also introduced the Seal 06, a plug-in hybrid EV under the Ocean lineup which is about the same size as the Qin L but loaded with more stylish design language to attract younger customers. 

GAC

Aion, the third best-selling EV brand in China last year after BYD and Tesla, showcased its first global model, replete with modern technologies and angular styling, as its state-owned parent beefs up its strategy to woo customers worldwide. GAC said its all-new Aion V, scheduled for launch in July, will maintain a driving range of over 750 kilometers (466 miles) even when the mercury dips to -30 degrees Celsius, and offers a large interior space comparable to the likes of the BMW X5. The all-electric sports utility vehicle, which incorporates traditional Chinese dragons into its design, can navigate varied urban environments worldwide with features such as lane switching by utilizing advanced artificial intelligence algorithms to process sensor data instead of high-precision maps, the company said.

Geely

Volvo’s parent showed its ambition to become a disruptive force in the global automotive industry with the debut of what it described as the world’s first production model with two sliding doors and front swivel seats. Geely has taken a radical approach to how EVs are put together, giving the 4.7 meter-long Zeekr Mix an extended wheelbase of three meters achieved through a more compact electric motor, shorter front overhangs, and repositioning of the air conditioning system, among other components. This, along with the front seats that can rotate 270 degrees, would allow kids to play or families to dine together in a 1.5 square meter interior flat space. The five-seater multi-purpose vehicle, offering a 1.5 meter width opening area for passengers, targets three-generation Chinese families, especially those with elders and pregnant mothers.

Honda

Japan’s Honda on Thursday began selling its second all-electric model with time-limited discounts in China in the company’s latest effort to boost sales. The move comes after entrenched rivals such as BYD and Tesla recently rolled out more price cuts amid slowing growth. The e:NP2 SUV has a driving range of 545 km at a price tag of RMB 159,800, providing buyers with a RMB 30,000 reduction compared to its original plan, according to Li Jin, a deputy general manager of Honda’s China joint venture with GAC. Honda also debuted the Ye, a new series of all-electrics with technologies sourced from Huawei and iFlyTek among other Chinese tech firms, as part of its plan to sell only EVs in China by 2035.

Toyota

Toyota said on Thursday it will integrate lidar sensors into its two upcoming models under the “Beyond Zero” (bZ) all-electric series, as the world’s top-selling automaker looks to provide consumers with the same level of assisted driving technology as Huawei and Xiaomi. The bZ3x and the bZ3c compact crossovers will be able to automatically change lanes, and enter and exit Chinese highways when they go on sale within the next 12 months. Toyota also announced it is exploring the uses of generative AI in collaboration with Tencent, as Chinese consumers expect their future vehicles to be more capable and personalized. This follows reports that the Japanese giant is using Huawei components to enable autonomous driving functions on its China-made EVs. 

Volkswagen 

Germany’s biggest carmaker participated in Auto Beijing 2024 with major global debuts including the ID.Code concept – which offers a glimpse into its upcoming, China-specific all-electric lineup ID.UX – as well as the Audi Q6L e-tron, the first production model based on its PPE electric platform. The coupe-styled ID.Code will be equipped for highly autonomous driving and come with a sophisticated AI assistant with contributions from local designers, as Volkswagen plans to introduce the first model under the new series later this year. In addition to partnerships with Xpeng and Horizon Robotics, the automaker confirmed it is working with Chinese tech giants including DJI, as its latest Tiguan L SUV now features an advanced driver assistance system (ADAS) sourced from the drone maker.  

Xiaomi, NIO, and Xpeng

Xiaomi was the center of attention on Thursday when the Chinese smartphone giant said it had secured 75,723 reservations with non-refundable deposits for the SU7, its first EV, with a competitive price range between RMB 215,900 and RMB 299,900. Chief executive Lei Jun expects monthly delivery to exceed 10,000 units in June and the company is set to reach a milestone with 100,000 EV deliveries by this year, which would be a record speed for any Chinese EV brand. The 55-year-old entrepreneur is an icon in the Chinese tech and auto industries, with his visits to rivals’ booths becoming one of the hottest topics at this year’s Beijing Auto show.

Xpeng Motors could take on its major frenemy with the mainstream brand MONA, short for ‘Made of New AI,’ CEO He Xiaopeng told reporters during a press conference. 

Meanwhile, one of NIO‘s new affordable brands, called ONVO, is scheduled for launch in the second quarter of this year. The luxury EV maker on Thursday launched a redesigned version of its ET7 sedan with a starting price of RMB 428,000, which is RMB 20,000 lower than its original version launched three years ago.

READ MORE: Huawei, Xiaomi, and Geely’s new EVs have details leaked on Chinese government site

On Thursday, Huawei unveiled a letter on the Chinese X-like social media platform Weibo to announce the Pura 70 Series Pioneer Program, a scheme for people to purchase devices from its latest mobile phone series without holding a launch event. The new range was launched with minimal marketing, in a similar approach to the one the Chinese tech giant took when launching the Mate 60 series last August. The Pura 70 Pro/Ultra models went on sale in China on Thursday, while the Standard/Pro+ models will be available on April 22.

Huawei’s flagship lineup is currently categorized into the Mate and Pura series. The Mate line focuses on high-end flagship devices and targets business users, while the Pura range leans towards imaging capabilities and aesthetic design.

Why it matters: Huawei intentionally chose April 18 to launch the Pura 70 series, as it marks the 12th anniversary of the launch of Huawei’s first Pura series device, the Ascend P1. The latest Pura series smartphones are equipped with Huawei’s self-developed Kirin chip, an effort to counteract US chip sanctions.

Details: Similar to the Mate 60 series, Huawei’s Pura 70 series hit the market without a launch event. The first batch of Pura 70 series products sold out within minutes on Huawei’s e-commerce platform. A number of tech bloggers have managed to acquire the Pura Pro and Pura Ultra models first hand for phone performance tests, but Huawei has not publicly disclosed the specific chip details of the Pura 70 smartphone series.

• The tech blogger Digital Chat Station revealed that the processors in the Pro and Ultra models are both identified as the Kirin 9010. The Kirin 9010 processor achieved a single-core score of 1,442 and a multi-core score of 4,471 on Geekbench, a cross-platform benchmarking tool used to measure and compare the performance of CPUs and GPUs across various computing devices. For comparison, the iPhone 12 Pro obtained a single-core score of 2,101 and a multi-core score of 4,936 on Geekbench.
• The Kirin 9010 adopts the same 2+6+4 architecture design as the Kirin 9000s (Mate 60 series), with two cores clocked at 2.30GHz, six cores clocked at 2.18GHz, and four small cores clocked at 1.55GHz. It seems to be a slight upgrade over the Kirin 9000s, the blogger said.
• The Pura 70 series features a distinctive triangular camera module on the rear, along with Huawei’s self-developed HarmonyOS 4.2 operating system. The premium Ultra model supports BeiDou satellite network functions, including text messages, image messages, and satellite calls. 
• The Ultra model also boasts a mightier camera setup with a 1-inch main sensor with retractable lens and variable aperture. Its camera system offers a 50MP 1-inch primary sensor, a 40MP ultra-wide sensor, and a 50MP macro telephoto shooter.
• In terms of pricing, the Ultra model comes in two storage variants: 16GB + 512GB priced at RMB 9,999 ($1,382), and 16GB + 1TB priced at RMB 10,999 ($1,520). The Pro model is available in three versions: 12GB + 256GB priced at RMB 6,499 ($898), 12GB + 512GB priced at RMB 6,999 ($967), and 12GB + 1TB priced at RMB 7,999 ($1,105). 
• Currently, the Pura 70 series phones are limited to sale in the Chinese market. The market intelligence firm TechInsights predicts that Huawei’s smartphone shipments in China will exceed 50 million units in 2024, with its market share increasing from 12% in 2023 to 19% in 2024. The Pura 70 series is expected to ship over 10 million units in 2024, positioning it as a major competitor to the iPhone 15 and 16 series, according to TechInsights.

Context: The Huawei P series was rebranded as the Huawei Pura range on Monday, with the Pura 70 series becoming the first device under the new name. Huawei did not explain the meaning of Pura. However, “Pura” in Spanish translates to “pure” or “clean”, and it can also mean “genuine” or “true” in certain contexts.

At Huawei’s spring product launch event on Thursday, Consumer BG CEO Yu Chengdong introduced the MateBook X Pro, a slim lightweight laptop featuring cutting-edge technology such as the Intel Core Ultra 9 processor and Pangu AI integration. Huawei did not disclose any information about its next-generation Huawei P70 flagship smartphone at the event however, despite it becoming a trending topic on Chinese social media in recent days.

Why it matters: The MateBook X Pro stands out from other laptops produced by the Chinese tech giant as the first PC to integrate its Pangu large language model. Huawei has collaborated with AI-model partners such as Baidu’s ERNIE Bot, WPS AI, and iFLYTEK’s Spark on the new computer.

Details: The MateBook X Pro is currently the sole laptop weighing less than one kilogram to be equipped with the Intel Core Ultra 9 processor, according to Yu.

• The 2024 slimline model has a thickness of 13.4mm and weight of 980g. An image shown at the event indicated that the 14.2-inch design is lighter than the 13.6-inch Apple MacBook Air (1.24kg). 
• The new model comes in two chip variants: the first generation Intel Core Ultra 9 185H processor and the Ultra 7 155H processor. These variants are paired with an Intel Sharp Graphics card, with options for 16GB or 32GB of RAM, and either 1TB or 2TB of NVMe PCI storage. Notably, the latest Intel Ultra 9 processor can enhance the device’s performance with up to 40W of power.
• The device supports the latest Pangu AI model, which provides artificial intelligence features including AI Minutes, AI Subtitles, and AI Eyes. AI Minutes can make rapid recordings, while AI Subtitles translates texts in real-time. AI Eyes is a photo enhancement software that can analyze and adjust images.
• The 2024 Huawei MateBook X Pro introduces a 14.2-inch OLED screen with a 3:2 ratio and a 3,120 x 2,080 pixel resolution. It boasts a peak brightness of 1,000 nits, a 120Hz refresh rate, and 1.07 billion color display.
• The MateBook X Pro is equipped with a 70Wh lithium polymer battery and supports fast charging at 140W. A 10-minute charge powers the device for up to three hours, the company claimed. 
• It is available in China in three configurations: the Ultra7 model with 16GB RAM and 1TB storage priced at RMB 11,199 ($1,658), the Ultra7 model with 32GB RAM and 1TB storage priced at RMB 12,499 ($1,727), and the Ultra9 model with 32GB RAM and 2TB storage priced at RMB 14,999 ($2,072).

Context: During the nearly two-hour launch event on Thursday, Yu did not once mention “far ahead,” a phrase that he had consistently used at previous product launches and which had gone viral on Chinese social media. Huawei has allegedly stopped him from using this term to describe products, according to local media outlet IThome. 

• Huawei President Ren Zhengfei has allegedly imposed a fine of RMB 10,000 for anyone from the company using the phrase “far ahead,” IThome reported. However, Yu previously denied the existence of such an order.

Major Chinese automakers, including Geely and Changan, have strategically introduced big discounts to their car prices or new variants of existing models despite posting a pickup in March deliveries, in a defensive move after Xiaomi’s first car reached nearly 90,000 pre-orders in just 24 hours. 

Xiaomi’s smash hit: The initial success of Xiaomi’s first EV, rolled out on March 28 with a lower-than-expected price tag, is having a knock-on effect on most other automakers which are being forced to take immediate action in order to hold on to their market shares. 

• The reservation-to-order conversion rate of the electronics brand’s SU7 has currently reached more than 35%, according to Sun Shaojun, founder of consumer behavior research agency CarFans. 
• Around 40% of Xiaomi customers canceled their pre-orders partly due to an expected long waiting time for vehicle delivery, Sun said in a Tuesday post on WeChat. Some were also frustrated by awkward sales-service interactions at overcrowded Xiaomi stores in major cities, Sun added, as the Chinese smartphone giant is gradually expanding its sales network for car retail. 
• Nevertheless, this is equal to a volume of at least 31,000 non-refundable orders in just four days, still an impressive performance for a new entrant and one that sees it surpass the early sales figures of Aito, a rising player launched by Xiaomi’s long-time rival Huawei.

March sales, discounts: Sales of Geely’s new energy vehicles (NEVs) rose 65% year-on-year and 34% month-on-month to 44,791 units in March, of which roughly 13,000 were Zeekr-branded battery EVs, partly driven by the strong sales of its refreshed 001 sports wagons, delivery of which began on March 1. 

• Geely on Monday launched a new rear-drive Zeekr 007 sedan, turning a bundle of add-ons into standard features including a large head-up display unit and heated and ventilated seats, at a price tag that is RMB 6,000 ($829) cheaper than Xiaomi’s SU7. 
• This comes after a similar move by Changan which two days earlier introduced a new entry-level variant of its Avatr 12, lowering the starting price of the premium sedan by 12% to RMB 265,800. Avatr’s deliveries more than doubled to 5,016 units last month. 
• Meanwhile, Huawei-backed Aito, which sells both battery EVs (BEVs) and plug-in hybrid EVs (PHEVs), edged out rival Li Auto for a third month in March with 31,727 deliveries compared to Li Auto’s 28,984, buoyed by strong demand for both the M7 and M9 crossover. 
• Aito claimed the M9 was the top-seller in the RMB 500,000-plus price segment in China last month, a title Li Auto had previously aimed for (and failed to reach) with its Mega van. Still, the EV brand, co-launched by Huawei and Seres, on Monday slashed the starting price of its best-selling five-seater by 8% to RMB 229,800. 
• NIO and Xpeng Motors deliveries also jumped significantly through March, and yet both are either slashing prices or using other promotions to lure customers. NIO’s ET5 and Xpeng’s P7i sedans compete in the same price segment as the Xiaomi SU7. 
• NIO said on Monday it will offer a reduction of RMB 10,000 for those who replaced their gasoline cars with a new EV. Xpeng’s G9 crossover now costs RMB 20,000 cheaper than its original list price, following a more than RMB 10,000 price reduction across its lineups a month earlier. 

READ MORE: Explainer: How a new round of price cuts are reshaping China’s EV market

Context: The March sales figures – which showed a rebound from the annual Chinese New Year holiday slump – also indicated a stronger growth momentum for PHEVs than BEVs with a growing number of carmakers pivoting to more affordable PHEVs as they look to expand NEV sales in China’s vast majority of underdeveloped regions.

• PHEVs accounted for more than half of BYD’s sales and enjoyed a higher growth rate than BEVs over the first three months of this year, according to a regulatory filing posted on Monday (in Chinese). The country’s biggest EV maker was followed by the likes of Geely, Aito, and Li Auto, all preferring a broader product portfolio to purely BEVs.
• Ouyang Minggao, an academic at the Chinese Academy of Science, said last month that PHEVs could grab substantial market share from internal combustion engine cars in the coming years, especially in the entry-level price segment, and expected more widespread adoption of BEVs over the next decade.
• EV adoption in China’s lower-tier cities and rural regions is slower than in the country’s more developed areas. A growing number of EV owners from lower-tier cities said they will go back to conventional automobiles for their next purchase due to a lack of charging infrastructure, according to an annual report by consultancy McKinsey released on March 12. 

READ MORE: Chinese officials reaffirm commitment to EV ambitions and promise raft of support measures amid industry doubts

Hundreds of people flocked to a Xiaomi store in the southern Chinese city of Guangzhou in the late hours of Thursday evening to be among the first to take a look at what many deem to be the electronics brand’s more affordable alternative to a Porsche, as the brand announced a lower than expected starting price for its debut electric vehicle. That’s what TechNode observed during a livestream broadcast by a Chinese electric car blogger on social media app WeChat that attracted more than 200,000 viewers within an hour. 

Xiaomi has already enjoyed a debut win after securing a record 50,000 pre-orders in just a few minutes following its SU7 EV launch event. The official livestream racked up nearly 43 million views on microblogging platform Weibo, underscoring the overwhelming interest among tech-savvy Chinese consumers in the company’s first car. Those making a reservation were asked to pay a RMB 5,000 ($692) deposit as part of the process, with the tech giant expressing its thanks to customers who did so in a brief statement on the microblogging platform Weibo (in Chinese). 

The all-electric sports sedan is selling at a lower than expected starting price of RMB 215,900 ($29,881), roughly $4,100 cheaper than the popular Tesla Model 3, while touting better performance from driving range to acceleration. The dual-motor all-wheel drive version competes with the Porsche Taycan with a top speed of 265 kilometers (165 miles) per hour at a price tag of only RMB 299,900.

Xiaomi’s car launch contrasts markedly with Apple’s surprise retreat from the EV landscape, after the iPhone maker reportedly scrapped its decade-long effort to make a car recently. “We will provide every user, including those with Apple devices, a smart and connected life experience everywhere, creating seamless integration in their homes, cars, and beyond,” Xiaomi chief executive Lei Jun said during the press conference (our translation). 

“A trump card”

Lei, the 55-year-old serial entrepreneur dubbed “China’s Steve Jobs”, tried to lure users away from traditional carmakers during the two-hour event by showcasing how Xiaomi’s ecosystem would provide universal connection and integration between different devices, including phones, cars, and gadgets at home. 

Xiaomi essentially promised potential buyers that their devices would be all tied together with a click, swipe, or a simple voice command. The car’s air conditioning will cool the interior down on a hot summer’s day once the owner tells a home speaker what temperature they want before even leaving the house, according to one example given. In another, the car’s dashboard could become a centralized command station for home accessories which will be activated as the driver approaches home. 

Although rival Huawei has touted similar efforts with its EV partners, Xiaomi claimed last November that more than 655 million devices have been connected to its IoT (Internet of Things) platform, from televisions to fitness bands, making it the biggest network of its kind worldwide. “This is a trump card from Xiaomi,” said Lei when discussing the linking of the brand’s new EV with its IoT network. 

“Better than Tesla”

Meanwhile, Lei mentioned Xiaomi’s plans to be “among the top-tier players” in autonomous driving, a field where Tesla already stands out as a pioneer globally and Huawei is establishing its name at home. The company said its EVs are already capable of traveling more than 300 km on average autonomously on Chinese highways before human drivers take over and will be able to complete most trips by themselves on urban streets across China by August. 

Xiaomi is moving towards two distinct approaches by working on both a camera-based computer vision system and another advanced driver assistance system (ADAS) that relies on more sensors including lidar. The company said it will exclusively employ Nvidia’s cutting-edge chips for both systems and bring the software development completely in-house to ensure timely over-the-air updates across all its car variants. 

“In China, Tesla vehicles will not be as good as the SU7 when it comes to intelligent driving capabilities,” said Lei, adding that customers who placed their orders before the end of this year will get the software free of charge. Tesla currently charges Chinese buyers RMB 64,000 for future access to its full self-driving (FSD) package, despite it remaining unavailable in the country. Still, it is faced with competitors from BYD to Geely which also look to offer customers highly automated features with their premium EVs.

READ MORE: Key takeaways from Xiaomi’s EV pre-launch: A top offering facing a tough test

Details of new electric vehicle models from Chinese auto and tech majors including Huawei, Xiaomi, and Geely have been leaked online via an official regulatory process. Some are expected to make their debut at the upcoming Beijing Motor Show next month, positioned to compete with models from dominant rivals such as BYD and Tesla, and potentially stirring up a new price war in the world’s biggest auto market.

The companies expect the upcoming models, now making a splash online, to become bestselling or otherwise strategically important cars for their brands. Below are highlights from the registration filings released for public review by China’s Ministry of Industry and Information Technology (MIIT) on Tuesday, giving critical details of the models ahead of their official launches. 

Stelato S9

The S9 will be the first model under the new premium Stelato brand launched in partnership between Huawei and China’s BAIC and the largest sedan model of all Huawei-enabled EVs to date. The car measures 5.1 meters in length and 1.5 meters in height with a wheelbase of nearly 3.1 meters, offering passengers a spacious and comfortable interior in an effort to draw in affluent Chinese consumers. 

The all-electric executive sedan will be available in single and dual-motor variants producing 308 and 524 horsepower respectively, and will include innovative elements such as a camera-based digital rear-view mirror system as an optional add-on, according to the filings. Analysts expect the car to be launched in June for between RMB 300,000 and RMB 500,000 ($41,730-$69,550). Shares in partner BAIC Bluepark surged 32% on the mainland Chinese stock market on the news over the week. 

Zeekr Mix

China’s Geely is raising its bet on the small but growing segment of multi-purpose vehicles with its upcoming roll-out of the Zeek Mix, an all-electric five-seater van, after the launch of its larger and more business-oriented Zeekr 009 nearly two years ago. The pictures published by MIIT show a mid-size MPV with a rounded exterior and low center of gravity as well as an optionalLIDAR unit mounted on the car’s roof for automated driving. 

It is slightly shorter than the Zeekr 007 sedan at nearly 4.7 meters in length, likely making it easier to maneuver and attractive to parents, while offering a larger interior with a 3,008-millimeter-long wheelbase. The single-motor car has a 422-horsepower electric powertrain – higher than the plug-in hybrid Denza D9 from BYD, currently a top-seller in the market, but less powerful than bigger offerings such as the Xpeng X9 and the Li Auto Mega. 

Xiaomi SU7

Xiaomi on Wednesday received Chinese government approval for a new variant of its first EV, the long-anticipated SU7, equipped with lithium iron phosphate (LFP) batteries sourced from CATL and roughly 110 kilograms heavier than the one powered by BYD’s iron-based batteries. Speculation has circulated that the new power option could be CATL’s Shenxing batteries, which have boasted of a high energy density for a longer driving range and an 800-volt electrical system for faster charging compared with existing offerings. 

China’s industry regulator had previously uncovered details about another entry-level SU7 and the more premium SU7 Pro/Max, which the company claimed could accelerate from 0 to 100 km/h (62 mph) in 2.78 seconds and would be more aerodynamic than rivals’ offerings including Tesla’s Model S. Chief executive Lei Jun said on Friday that the smartphone maker will begin deliveries immediately on March 28, when pricing of the sports sedan will be finally announced.

READ MORE: Explainer: How a new round of price cuts are reshaping China’s EV market

Huawei and Chinese automaker BAIC are aiming for monthly sales of their first joint electric vehicle model under a new brand to exceed 10,000 units, as they also set their sights on markets in Asia and Europe, Chinese media has reported. 

Why it matters: The launch of the new car brand with BAIC, named Stelato and scheduled to be unveiled in April at this year’s Beijing Motor Show, would be another test for Huawei as the smartphone maker has been looking to grow its automotive business after being hit by US sanctions. 

• Huawei’s track record in EVs has so far been mixed. It has managed to bring the struggling Aito brand back to life with manufacturing partner Seres following the successful launch of the redesigned M7 plug-in hybrid crossover in September. However, the first Luxeed EV was a setback for the tech giant and its partner Chery, as buyers were confounded by delivery delays stretching for months. 

Details: Huawei and BAIC Bluepark, a mainland-listed subsidiary of the state-owned automaker, expect monthly sales of the first model under the new Stelato brand to achieve more than 10,000 units, according to an internal memo seen by Yicai (in Chinese). 

• According to the report, the executive sedan will be priced between RMB 300,000 and RMB 500,000 ($41,730-$69,550), and is scheduled to debut next month at this year’s Beijing Motor Show; it would then officially launch in June. 
• BAIC, a main partner of Daimler in China, is planning to create a capacity of around 300,000 EVs for the Stelato project, with more high-end EV models from sports sedans to SUVs in the pipeline, the report said. 
• The automaker last month told investors it is setting up a sales and service network for overseas markets, especially Europe and Asia. An existing partner to Huawei, BAIC sold fewer than 50,000 units of its Arcfox-branded EVs from 2021 to 2023. 
• Meanwhile, Huawei is set to launch its first model as part of a separate partnership with JAC Motor by the end of this year. The two companies plan to produce 35,000 units of the multi-purpose vehicle annually in a new plant scheduled for completion in 2025, according to an environmental filing published on March 1. 

Context: More Chinese automakers, such as state-owned Changan and Dongfeng, are joining Huawei’s expanding “Harmony Intelligent Mobility Alliance” in hopes of re-creating their brand images with Huawei’s smart cockpit and automated driving technologies, and leveraging its sales network.

• Aito for now remains the biggest success story of Huawei’s push into EVs, as vehicle deliveries grew 24% year-on-year to 94,380 units in 2023. Sales further increased to more than 54,000 units during the first two months of this year when most automakers reported flagging sales.

On Thursday, Huawei launched the Huawei Pocket 2, a sleek flip foldable phone seemingly targeted at a young, predominantly female demographic, hitting the shelves after a 16-month gap since the previous generation. The Pocket 2 stands out as the industry’s first foldable flagship to support messaging via China’s Beidou satellite, facilitating communication in regions lacking ground network signal. The device also represents Huawei’s first foldable device equipped with its self-developed Kirin chipset.

Why it matters: Foldable smartphones, an emerging product range in the smartphone industry, have huge market potential in the Chinese market compared to traditional models – although overall phone shipments in China saw a decline in 2023, the foldable category experienced a sharp rise in sales.

Details: Alongside two-way satellite messaging through the Beidou satellite, Huawei claims the Pocket 2 is the world’s first flip foldable smartphone with four cameras on its cover and featuring a self-developed rocket-steel material water-drop hinge.

• The Pocket 2 is equipped with Huawei’s Kirin 9000S chip, a 7nm processor also featured in the company’s latest flagship phones. Paired with 12GB of RAM, it offers storage options ranging from 256GB to 1TB.
• The Pocket 2 boasts a Xuanwu water-drop hinge, which increases its flatness by 62%, and a double-arm lever gear that enhances support force by 41%, according to the company. Huawei states that the rocket-steel design improves drop resistance by 112%.
• Huawei has equipped the interior with a 6.94-inch foldable OLED screen, while the cover features a 1.15-inch circular screen positioned next to the camera island. The 6.94-inch OLED screen offers a resolution of 2,690 x 1,136 pixels and a variable refresh rate from 1Hz to 120Hz, delivering a peak brightness of 2,200 nits.
• The imaging system includes a 50MP main camera (with f/1.6 aperture, OIS), a 12MP ultra-wide macro lens (with f/2.2 aperture), an 8MP periscope telephoto camera (with 3x optical zoom, f/2.4 aperture), and a hyperspectral camera that can detect ultraviolet intensity to provide suggestions on sunscreen protection.
• The Huawei Pocket 2 is available in four color variants: gray, white, purple, and black. The flip phone starts from RMB 7,499 ($1,042) for the standard 256GB model, while the 512GB and 1TB models cost RMB 7,999 ($1,112) and RMB 8,999 ($1,251) respectively.

Context: Chinese consumers are increasingly inclined to try foldable smartphones as related technologies mature and prices become more affordable. 

• In 2023, foldable smartphone shipments in China reached around 7 million units, reflecting a year-on-year growth of 114.5%, according to market intelligence firm IDC. Huawei took the top spot in the domestic foldable market last year with a market share of 37.4%, while Oppo secured second place with an 18.3% market share.

Nvidia is making a strategic return to the Chinese market by introducing its China-specific H20 AI chip, a move that comes after US policies affected the company’s sales in China. Nvidia has begun taking pre-orders from distributors for its H20 AI chips, priced almost on par with Huawei’s Ascend 910B, according to Reuters.

Why it matters: To address challenges posed by the US’s bans on the sale of certain GPUs (Graphics Processing Units) to China, Nvidia has launched cut-down variants compliant with American export policies. Amid concerns about potential limitations on accessing Nvidia’s products, Huawei’s chip is widely acknowledged as the leading alternative AI offering in China.

Details: Prior to the US curbs, Nvidia held over 90% of the AI chip market in China, according to the Reuters report. However, it is now facing growing competition from local competitors such as Huawei. The H20 AI chip is priced at $12,000 to $15,000, positioning itself as a competitor to Huawei’s Ascend 910B. 

• In October 2023, the US government imposed new restrictions on the export of advanced AI chips, leading Nvidia to immediately halt shipments of high-performance AI chips including the A100, A800, H100, H800, and L40S products. Subsequently, Nvidia initiated the development of new AI chips specifically designed for the Chinese market, including the H20, L20, and L2. All three chips are modified versions of Nvidia’s H100 AI chip.
• While the H20 is expected to provide less computing power than Nvidia’s flagship H100 AI chip, specifications suggest its performance is also inferior to Huawei’s Ascend 910B in certain key aspects. Notably, the H20 may lag behind the 910B in FP32 performance, a critical metric that measures processing speed, and is rated at less than half of its competitor’s capability, the source behind the Reuters report told the news agency.
• However, the H20 is likely to have an edge over the 910B in terms of interconnectivity speed, with the H20 being competitive in applications that require the connection of a large number of chips to function as a system, the report explained.
• In terms of performance, the H20 chip’s AI computing power is slightly less than 15% of the H100, according to US media outlet Wccftech. The H20 AI chip features 96GB memory capacity operating at up to 4.0 Tb/s, 296 TFLOPs computing power, and a performance density of 2.9 TFLOPs/die, compared to the H100’s 19.4 TFLOPs/die.
• Distributors have reportedly informed clients that they can start deliveries of H20 products in small batches during the first quarter of 2024, with larger quantities available from the second quarter. Last month, it was reported that Nvidia intends to mass produce the H20 in the second quarter of this year.

Context: On Jan. 20, Nvidia CEO Jensen Huang visited the company’s offices in Shenzhen, Shanghai, and Beijing for the annual parties held in celebration of China’s Lunar New Year holiday, with the company clarifying that the visit did not involve business operations.

Huawei and Dongfeng Motor, a Chinese manufacturing partner of Stellantis, are in an ongoing collaboration to develop smart electric vehicles, the companies have announced. This adds to a string of such deals by technology giant Huawei as it accelerates its entry into the auto market. 

The partnership could help Voyah, a subsidiary of state-owned automaker Dongfeng, increase sales and expand its presence in the red-hot EV market where a wave of consolidation and reshuffling is underway, according to David Zhang, a visiting professor at Huanghe Science and Technology University. 

Why it matters: The alliance is the latest example of Huawei’s multifold endeavor to expand into EVs. It has pushed two initiatives to enhance cooperation with carmakers in particular. 

• One is the so-called “Huawei Inside (HI)” business model, signifying that cars will feature Huawei’s full-stack technologies such as automated driving software and infotainment systems. Changan Automobile and Mercedes’ Chinese partner BAIC are among its partners. 
• The other is “Smart Selection,” in which Huawei not only provides technologies but also sales channels while gaining control over vehicle development. Aito has been the biggest success story under this approach, followed by the recent launch of Luxeed between Huawei and Chery. 

Details: According to Zhang, Huawei will adopt the HI approach with Dongfeng, mainly selling the carmaker components and software, and will probably not go into as much depth as it did with Seres. 

• This would allow Dongfeng, controlled by the State-owned Assets Supervision and Administration Commission, China’s state asset regulator, to maintain control of its premium EV brand, Zhang said. 
• As more EVs embrace cutting-edge technologies, an automated driving system powered by Huawei could be a big selling point for Voyah, elevating it above other brands. The tie-up could see the companies share development and marketing costs, Zhang added. 
• In a Monday announcement (in Chinese), Huawei and Dongfeng said they will move forward with the large-scale adoption of intelligent technologies with the joint development of new cars, without giving further details. 

Context: Huawei has been working on the spin-off of its automotive business unit for several months. The company in November announced plans to establish a joint venture with Changan, stating that other existing partners such as Seres have been invited to invest in the new entity. 

• Voyah posted significant growth in sales last year with deliveries of 50,552 vehicles, compared to less than 20,000 units sold a year earlier. The automaker in August launched a revamped version of its Free mainstream luxury crossover with a starting price of RMB 266,900 ($36,532) featuring Baidu’s automated driving assistance system.

On Thursday, Huawei announced open applications for its developer preview version of HarmonyOS NEXT, with plans to release a more feature-complete developer beta version in the second quarter and a commercial version by the fourth quarter of 2024 as it looks to cut its ties with Android.

Why it matters: While all previous consumer versions of Huawei HarmonyOS have been compatible with Android, HarmonyOS NEXT will break away from Android architecture, establishing itself as a truly independent operating system.

Details: Huawei began the development of HarmonyOS in 2015 and subsequently released different versions from HarmonyOS 1.0 to 4.0. HarmonyOS NEXT will be the Chinese tech giant’s first OS not to accommodate Android applications and will not support the opening of APK files (Android application packages), according to statements made at Huawei’s launch event. Huawei opened recruitment for the HarmonyOS NEXT developer preview version on Monday, allowing users of its Huawei Mate 60, Mate 60 Pro, and Mate X5 phones to sign up.

• Huawei plans to partner with enterprises, universities, and institutions to train over 100,000 HarmonyOS developers each month. The company is introducing the Yaoxing Plan, with an investment exceeding 7 billion RMB ($9.84 billion), to incentivize innovation in the HarmonyOS ecosystem, including native applications and SDKs (software development kits).
• At the time of writing, more than 200 software companies have initiated the development of native HarmonyOS applications, making up 90% of the leading applications in the domestic sector, according to Huawei. Huawei aims to achieve a short-term goal of reaching 5,000 collaborative apps by the end of this year, and anticipates exceeding 500,000 applications to join the native HarmonyOS ecosystem in the long term.
• Huawei’s Consumer BG CEO, Yu Chengdong, mentioned at the event that HarmonyOS has made breakthroughs in core technologies, including AI frameworks, large-scale models, design systems, programming frameworks, programming languages, and compilers.
• Huawei first introduced HarmonyOS to address user experience issues arising from US sanctions. However, the company is now seeking to break free from the constraints of the existing Android framework, and create an integrated architecture that combines software, hardware, and cloud services, according to the president of Huawei Consumer BG software department Gong Ti.

Context: In June 2023, according to local media outlet Zaker, Huawei stated that a 16% market share in the operating system is a critical threshold for success, based on the developmental history of the PC and mobile industries.

• Due to Huawei’s current inability to integrate GMS (Google Mobile Services), the 16% goal primarily refers to the Chinese market, where HarmonyOS has already captured a 13% share, as reported by CounterPoint Research.

Huawei is doubling down on electric vehicles with plans to run as many as 800 showrooms in China next year dedicated to the joint car brands that it has launched with manufacturing partners, aiming to become a more visible player in the world’s biggest auto market. 

Why it matters: The new shops, expected to present a broader portfolio with larger spaces compared to Huawei’s current policy of showcasing vehicles in its regular appliance stores, will allow Huawei to display models and arrange test drives for more potential buyers. They will also be part of a branding overhaul to enhance Huawei’s brand image as a major car tech company. 

• Huawei began selling EVs powered by its technologies and manufactured by partners via its sales network for smartphones in early 2021 under its “Smart Selection” approach, in which Huawei reportedly provides sales channels and has more control over vehicle development.

Details: In what could be the tech giant’s fastest period of growth in its history, Huawei is planning to operate 800 car showrooms next year and increase that number to 1,000 in 2025, people familiar with the matter told Chinese media outlet 36Kr. 

• Those new shops will feature a new brand called the Harmony Intelligent Mobility Alliance (HIMA), a collaborative initiative for carmakers and a rebranding of Smart Selection based on Huawei’s proprietary Harmony operating system. 
• Some of the smaller locations could start from 2,500 square meters, allowing six cars to be displayed in-store while also doubling as a delivery center with another six for-sale vehicles in parking spaces outside, according to a franchise disclosure document obtained by 36Kr. 
• Huawei’s preferred flagship stores require a wider area of 8,000 square meters or more, and the company is renovating some existing retail shops to showcase the new HIMA brand with improved layouts, according to the report. 
• Some existing locations do not showcase the newly launched Luxeed S7 due to limited space, the report said. Huawei currently has three models on sale in partnership with Chongqing-based manufacturer Seres and state-owned carmaker Chery. 
• Huawei did not respond to TechNode’s request for comment. 

Context: Sources added that a retail and distribution network of 800 shops next year will be comparable to that of Huawei’s major rival Li Auto, which operates nearly 400 direct-sales stores and 320 maintenance centers as of November. 

• Huawei is quickly expanding its EV lineup in collaborations with existing partners, which also include Changan and JAC. It is set to launch the M9, a full-size sports utility vehicle, with Seres at a price range of between RMB 500,000 and RMB 600,000 ($69,972-$83,966) on Dec. 26. 
• Aito, an EV brand set up by Huawei and Seres in December 2021, delivered nearly 19,000 vehicles in November on the back of strong order volume for its redesigned M7 crossover. It operated a network of 1,000 retail locations and service centers in 230 Chinese cities as of June. 
• Meanwhile, long-time rival Xiaomi is on track to launch its first EV model, the SU7, and is reportedly preparing showrooms for car sales with the first batch of display models expected to arrive early next year.

In the recently released 2023 EU Industrial Research and Development (R&D) Investment Scoreboard put together by the European Commission, Chinese tech giant Huawei has maintained its position among the top five global companies that made the highest R&D investments in 2022.

Why it matters: Huawei has been increasing R&D investment to strengthen its technological self-reliance in the face of US sanctions. This strategic move allows the telecoms behemoth to mitigate the impact of sanctions while preparing itself for long-term development amid geopolitical challenges.

Details: The European Commission’s report provides statistics on research and development (R&D) investment for the top 2,500 ranked companies. It indicates that these enterprises collectively increased their R&D expenditure by 12.8% in 2022 compared to 2021, reaching a record-breaking total of 1,249.9 billion euros. Although Huawei dropped one spot compared to the 2021 list but still secured fifth position, with an investment of 20.925 billion euros.

• In 2022, Huawei, TSMC (Taiwan Semiconductor Manufacturing Company), and CATL (Contemporary Amperex Technology Co. Limited) secured positions among the top ten in R&D investment within the Information and Communication Technology (ICT) sector. The ICT sector covers computing services, semiconductors, telecommunications, and multimedia.
• In 2022, Huawei invested 20.925 billion euros, with a year-on-year growth of 11%, while TSMC invested 4.985 billion euros, demonstrating a significant year-on-year growth of 31%. Meanwhile, CATL invested 3.072 billion euros, an explosive year-on-year increase of 110%.
• The top three countries represented on the list are the US, China, and Japan. The US leads with 827 companies on the list, investing a substantial 526.5 billion euros, while China follows closely with 679 companies who have allocated a total of 222 billion euros to R&D endeavors. Japan boasts 229 companies on the list, with a total R&D expenditure of 116.2 billion euros.
• In terms of distribution of R&D investment across regions, the US, China, and the European Union occupied the top three positions, securing shares of 42.1%, 17.8%, and 17.5%, respectively.

Context: The Chinese Academy of Engineering issued its list of 2023 Global Top Ten Engineering Achievements on Wednesday, with Huawei’s self-developed operating system HarmonyOS being recognized among them. The other nine selected achievements were ChatGPT, the Chinese space station, AMD’s Frontier (a supercomputer capable of 100 billion x billion calculations per second), the Baihetan hydropower station, the double-asteroid redirection test, the RTS,S/AS01 malaria vaccine, Spot & Atlas robots, lithium-ion power batteries, and unmanned aerial vehicles.

• In August 2023, Huawei released HarmonyOS 4.0 as a public beta version, in an effort to compete with Android and iOS. Currently, there are over 400 partners participating in co-building on and sharing of the technical foundation of HarmonyOS, according to Huawei. 
• Huawei plans to commence construction of its first European factory in France in 2024, as reported on Dec. 11. The facility is expected to focus on 4G and 5G equipment production, reinforcing Huawei’s presence in Europe.

Xiaomi on Tuesday released a statement refuting an apparent claim made by senior Huawei executive Yu Chengdong that Xiaomi’s dragon bone hinge technology for its foldable phones is a direct copy of Huawei’s dual rotating water drop hinge. Yu, the CEO of Huawei’s consumer department, made these comments during a company event last week; Xiaomi has said the accusation is “seriously inconsistent with the facts.”

Why it matters: One of the key elements of foldable phones lies in their unique hinge design, which directly influences the phone’s folding mechanism and screen creases. The controversy between Huawei and Xiaomi, two of China’s biggest phone brands, reflects intensifying competition in the foldable phone market.     

Details: In the statement, Xiaomi posted detailed comparisons, including the application dates, publication dates, and technical features of relevant patents. Both the design concept and mechanical structure of their dragon bone hinge are completely different from Huawei’s dual rotating water drop hinge, according to the statement, which was posted to the company’s account on the Twitter-like Weibo platform.

• “Some companies directly copy our technology and then claim it as their own invention. The concept of the dragon bone hinge is fundamentally non-existent, as they’ve transformed our double rotating water drop hinge into a dragon bone hinge,” said Yu during an annual Huawei event on Dec.10. “Once competitors make modifications, this technology becomes their own,” he added.
• While he didn’t explicitly name the rival phone brand, Yu’s remarks were widely interpreted as an attack on Xiaomi, which launched its new generation of foldable flagship, the Xiaomi MIX Fold 3, in August and is the only phone brand on the market to use what it terms a dragon bone hinge.
• According to Xiaomi’s statement, the dragon bone hinge was patented on September 18, 2020, and received patent authorization on January 5, 2021. Huawei’s dual-rotating water drop hinge was only publicly disclosed on June 18, 2021, though it was patented on December 13, 2019. 
• Xiaomi’s dragon bone hinge features a “three-level rod, five-component, seven-low-friction design,” the statement continued, while Huawei’s dual rotating water drop hinge is described as a “two-level rod, three-component, four-low-friction design.” 
• Furthermore, Huawei’s current three-level rod patent was applied for on October 29, 2021, and was publicly disclosed on May 5, 2023, but it has not yet entered mass production, according to Xiaomi.
• In the concluding part of the statement, Xiaomi emphasized that Yu Chengdong should adhere to “the basic principles of science” and refrain from misleading the public.

Context: Research firm TrendForce‘s report indicates that the anticipated shipment of foldable smartphones in 2023 is around 18.3 million units, with a year-on-year increase of 43%. Huawei’s estimated shipment of foldable smartphones this year is expected to reach 2.5 million units, according to the same report.

• The Xiaomi MIX Fold 3 set a new record for Xiaomi upon its release, with sales increasing 2.25 times compared to the previous generation, according to the company’s second quarter financial report.
• In the third quarter of 2023, sales of foldable smartphones in the Chinese market reached 1.98 million units, representing a year-on-year increase of 175%, according to CINNO Research. In terms of brand ranking, Huawei occupied the top spot with a market share of 28.6%, while Xiaomi was in sixth place with a market share of 8.7%.

Major Chinese electric vehicle makers from BYD to Xpeng Motors have collectively posted strong delivery figures in November as they attempt to hit their annual targets and as competition shows no signs of subsiding in the world’s biggest auto market. 

Why it matters: Jefferies analysts wrote in a Dec. 1 note that they estimated sales of China’s new energy vehicles (NEVs), mostly all-electrics and plug-in hybrids, to reach 1 million units in November with a solid month-on-month growth rate of 10% from a high base. 

• However, analysts warned of an intensified price war as 2023 comes to a close, as major EV brands including BYD and Li Auto have either cut prices or increased the royalties for customers since late November to boost year-end sales. 

Details: BYD on Dec. 1 revealed monthly sales figures of its premium Fangchengbao and Yangwang marques for the first time following their launches earlier this year, announcing it handed over 626 and 408 units to customers, respectively. Delivery of the RMB 1 million ($150,000) Yangwang U8 and the Bao 5, with a price range of RMB 289,800 to RMB 352,800, began in late September and November separately. Overall, the EV giant outsold its October figures by 70 units in November. 

• Geely’s NEV sales increased 4.7% month-on-month to 65,034 units last month thanks to a wide product portfolio under a multi-brand strategy. Volvo’s parent said it delivered 13,770 units under the Galaxy marque and 13,104 Zeekr-branded battery EVs, while sales of its Lynk & Co 08 extended-range hybrid EV surpassed the 10,000 mark over the month. The numbers of GAC’s Aion and Great Wall Motor rose 0.15% and 0.23% from a month previously, respectively. 
• Huawei-backed Aito posted its best-ever month by delivering 18,827 units, which is nearly 50% higher than its deliveries in October and surpassed the top end of the guidance provided by Huawei’s head of consumer business group a week ago. The number is expected to exceed 23,000 this month and to hit 30,000 in January, as the EV maker said it has secured more than 100,000 non-refundable orders for the revamped M7 crossover over the last two months or so.
• Growth momentum has been sustained for both Li Auto and Xpeng Motors which once again reported record-setting deliveries of 41,030 and 20,041 vehicles last month respectively. Li Auto’s founder Li Xiang said it is aiming for deliveries of 50,000 EVs this month, while Xpeng on Nov. 15 forecasted the fourth quarter delivery of up to 63,500 units. NIO‘s November delivery of 15,959 vehicles is basically flat from the previous month. 

Context: China’s NEV sales were partly boosted by the opening of the annual Auto Guangzhou show on Nov. 17 with dozens of debuts of all-new cars, as major players try to enhance their presence among a crowded field. 

• More than 5.9 million NEVs were sold during the first ten months of this year, representing a year-on-year growth of 34.2% and accounting for 34.1% of total car sales in China, according to figures from the China Passenger Car Association. 
• Miao Wei, former minister of Industry and Information Technology, expects the NEV penetration rate to exceed 50% of all new car sales as early as 2025. That would be 10 years ahead of Beijing’s schedule. Miao made the comment on Nov. 29 during this year’s China Automotive Industry Forum, reported media outlet The Paper.

Huawei is spinning off its automotive business unit, enabling Changan Automobile and other manufacturing partners to invest, in a move aimed at turning the loss-making car division into a profitable operation amid fierce competition. 

Why it matters: The reorganization is a rare move for Huawei – a company under 100% ownership of founder Ren Zhengfei and its staff since 2003, according to its official website – as the Chinese telecommunication giant puts a date of 2025 on its target of profitability for its as-yet loss-making auto business. 

• Deemed by Citic Securities analysts as “a milestone” for the Chinese auto industry, the move is expected to help Huawei court new industry allies and gain investment to pursue intelligent vehicle technology. Established automakers such as SAIC have reportedly voiced concern about Huawei’s move into electric cars. 
• The equity structure of the new entity may be comparable to that of the United Automotive Electronic Systems, a joint venture formed by German auto supplier Bosch and several Chinese carmakers including SAIC, FAW, and Dongfeng in 1995. This would allow more automakers to benefit from collaboration, and not just Changan, analysts wrote in a Nov. 26 note. 

Details: The new joint venture will focus on areas already covered by Huawei’s Intelligent Automotive Solution (IAS) business unit, including the development of intelligent driving software, digital cockpit systems, and digital platforms, among others, according to a regulatory filing published by Shenzhen-listed Changan dated on Monday. 

• Huawei will take at least a 60% stake in the new entity but will no longer directly compete against the new company in principle. Changan and its relevant parties will acquire no more than a 40% stake in the JV. The two companies plan to discuss the details of the transaction and sign an agreement within six months, the filing said. 
• The establishment of the new entity will have no impact on the ongoing collaboration between Huawei and Chinese car manufacturer Seres, according to a Nov. 26 statement. Seres, which makes Aito-branded EVs for Huawei, added it has been asked to participate in the investment and is in discussions to jointly develop intelligent electric vehicle architecture.
• The entity will prioritize diversified ownership, said the filing. It is anticipated that various parties will engage deeply in the development of the open vehicle platform, said Richard Yu, CEO of Huawei’s consumer business group and chairman of the IAS BU, who compared the platform to “a train engine.” 

Context: Huawei, state-owned Changan and Chinese battery maker CATL announced a partnership to establish EV brand Avatr back in late 2020. The companies have sold roughly 20,000 units of the Avatr 11 battery electric crossover since delivery began last December, launching their second premium model with a starting price of RMB 300,800 ($41,240) earlier this month. 

• Huawei has also been selling EVs since mid-2021 with lesser-known Seres, formerly the Chongqing Sokon Industrial Group, followed by the launch of the first Aito-branded EV last September. Huawei said in early October that it had secured more than 50,000 non-refundable orders for the redesigned version of the M7, Aito’s second model, less than a month after its launch. That number was updated to more than 100,000 as of Monday.
• The Chinese tech giant is also partnering with domestic manufacturers Chery, BAIC, and JAC, showcasing the first model under the new Luxeed marque jointly set up with Jaguar Land Rover’s manufacturing partner Chery on Nov. 9. The Luxeed S7 sedan will be officially launched on Tuesday and the respective new models co-built with BAIC and JAC are set to hit the market in 2024. 
• Huawei reportedly invested $1 billion in its automotive business in 2021 and has since maintained its push into the Chinese intelligent EV market in an effort to diversify its revenue sources and offset the impact on its core businesses from US trade restrictions. The IAS BU recorded revenue of RMB 1 billion during the first half of this year, accounting for around 0.3% of its total revenue. 

READ MORE: Xpeng and Huawei-backed EV maker set new delivery records as demand grows for self-driving tech

Chinese mobile phone company Honor issued an internal announcement on Wednesday stating that the former Huawei sub-brand plans to optimize its equity structure and attract diversified capital through an initial public offering (IPO), as reported by local media outlet Icsmart. Honor has not announced a timeframe or a location for the upcoming listing.

Why it matters: The announcement comes three years after Huawei was effectively forced to sell Honor in November 2020 to help the sub-brand bypass the restrictions imposed upon Huawei by US sanctions. Bought by a state-owned enterprise in Shenzhen, Honor has since emerged as a leading phone brand in the Chinese market.

Details: As part of its preparations for the IPO, Honor has made adjustments to its board of directors: Wu Hui will serve as the new chairperson, while the former chair Wan Biao becomes vice chairperson.

• Following Xiaomi and Transsion, Honor may become the third domestic phone company to go public, according to Jiemian. Xiaomi is listed on the Hong Kong stock exchange and currently holds a market capitalization of HKD 377.8 billion ($48.87 billion), while Transsion’s market capitalization is valued at RMB 95.6 billion ($13.36 billion). 
• Ever since Honor’s spin off from Huawei, there has been speculation in the industry about a possible listing for the handset maker, including the possibility of a backdoor listing through Transsion.
• Honor resumed allocation of shares around June of this year, primarily targeting distribution partners at the municipal level in each province, according to the aforementioned report from Jiemian. Additionally, Honor has initiated an employee stock allocation program, with high expectations for the company’s listing among its staff.
• At the end of 2022, Honor completed another round of strategic financing, adding six new shareholders, with leading display-panel industry player BOE among them.
• The newly appointed chair, Wu Hui, previously served in the Shenzhen municipal committee office, before later being transferred to work in the Hubei provincial government and the municipal government in Xianning, a city in Hubei. In April 2021, Wu Hui returned to Shenzhen and took on the role of chairman of Shenzhen Environmental Water Group.
• Vice chair Wan Biao was once a key figure in Huawei’s consumer business department. He joined Huawei in 1996 and held various positions such as president of Huawei’s wireless product line, president of its terminal company, and COO of its consumer business department. In November 2020, Wan Biao joined Honor and became its chairperson.

Context: In the third quarter of 2023, Honor secured the top spot in the domestic smartphone market with a shipment share of 19.3%, according to research firm IDC. 

• During July to September of this year, Honor released three foldable devices, namely the Magic V2, V Purse, and Magic Vs2, aiming to establish a strong presence in the high-end phone segment. 
• In the third quarter of 2023, the Chinese foldable smartphone market continued its rapid growth trend, reaching a shipment volume of 1.96 million units, an increase of 90.4% year-on-year, according to the same report from IDC. Honor captured a market share of 15.1%, ranking fourth in this segment.

Huawei on Thursday revealed its first electric sedan under the new Luxeed marque in collaboration with automaker Chery, saying it will compete with Tesla and Mercedes Benz’s premium offerings at a price comparable to the cheapest models of its international rivals.

“After some deliberation, we will make all versions of the Luxeed S7 available for purchase despite making a loss,” Richard Yu, the chief executive of Huawei’s consumer business group, told the media during a press conference in Shenzhen (our translation). This will allow more customers to try Huawei’s smart vehicle technology at an affordable price, said Yu.

The aggressive pricing strategy unveiled at the Luxeed S7’s launch marks the latest push by the Chinese technology giant to crack the world’s biggest and most competitive electric vehicle market. Huawei hopes it will be a new revenue source to offset the negative impact of US restrictions on its smartphone business. 

Here’s what we know about the newly-launched Luxeed S7 sedan:

Pricing: The sedan comes at a minimum price of RMB 258,000 ($35,381), RMB 2,000 lower than Tesla’s entry-level Model 3 in China. Pre-sale started on Thursday and the official launch is scheduled for Nov. 28.

Automated driving: The Huawei-Chery electric sedan is the first model to use the tech giant’s latest proprietary Harmony operating system. Its autonomous valet parking feature enables the car to park itself in lots and then return to a designated spot using a remote-control assisted function.

The premium versions of the Luxeed S7 will include Huawei’s laser sensor units and its Advanced Driving System (ADS) that uses deep learning networks and computer vision algorithms, including one called the General Obstacle Detection network, for navigating its surroundings. 

Huawei has claimed its partially autonomous driving technology will be accessible on major city roads across China by the end of the year, potentially ahead of rivals including Xpeng Motors. 

Main specs: Yu specifically identified Tesla’s Model S as Huawei’s major competitor, claiming that Huawei and Chery’s full-size luxury sedan outperformed its rival’s in terms of range, energy efficiency, and luxury. 

The top-end Luxeed S7 will have a driving range of more than 800 kilometers (497 miles) and be capable of driving another 400 km on 15 minutes of supercharging using Huawei’s facilities. By comparison, the dual-motor Tesla Model S has a 715 km range and can add 347 km in 15 minutes. 

The car also impresses with high energy efficiency, consuming an estimated 12.4 kWh per 100 km, compared with 13.2 kWh and 17.5 kWh achieved by the rear-drive Model 3 and the dual-motor Model S respectively. “This is far ahead of our rivals,” said Yu, using a phrase that has become a Huawei-related buzzword on the Chinese internet. 

The S7 slightly beats out the Model S with a drag coefficient of 0.203. Meanwhile, it offers a 0 to 100 km/h (62mph) acceleration of 3.3 seconds, just under the 3.1 seconds reported by the Model S performance version but faster than the Porsche Taycan 4S, according to Yu. 

Interior: The sleek, aerodynamically favorable sedan boasts of a larger cabin space than its major luxury competitors with an interior length of 1,910 mm. The Mercedes E300L and the Tesla Model S measure 1,898mm and 1,816mm in interior length respectively, according to figures cited by Huawei during the press conference. 

The S7 also comes with a sporty design concept for the inside, featuring a wide dashboard, a 12.3-inch smart screen, as well as an oval-shaped steering wheel, allowing drivers to see the whole display, rather than having to view it through the steering wheel. 

In addition, it has adopted so-called zero gravity seat technology for the front passenger seat. This allows the human body to take on a neutral spinal posture, reducing the amount of stress placed on bones and joints, while the backs of the rear seats are heated, ventilated, and 27/32° adjustable.

READ MORE: Huawei-backed Aito now has 50,000 orders for its redesigned M7 model

Chinese electric vehicle makers Xpeng Motors and Aito on Wednesday posted record-breaking figures for monthly deliveries, as the pace of adoption of self-driving technology accelerates among local customers despite slowing growth in China’s electric vehicle segment as a whole. 

Strong orders for Huawei, Xpeng, and DJI’s city NOA (Navigation on ADAS) products mark the start of the commercialization of smart driving, Jefferies analysts wrote in an Oct. 24 note. They added that Chinese automakers are becoming more willing to “test the waters” with chips by Huawei on some of their vehicles.

Why it matters: The latest figures highlight a brutal price war that has been continuing for months in the market, and the struggle automakers are facing in having to choose between lower prices or losing market share. 

• Xpeng in June unveiled the G6, its crossover answer to Tesla’s Model Y, at a price tag 20% lower than its US rival in China. Aito’s all-new M7 sports utility vehicle now costs RMB 40,000 ($5,468) less than the version launched a year ago.

Riding the self-driving boom: Xpeng Motors handed over 20,002 electric cars to customers in October, crossing the 20,000 unit milestone, nearly a threefold increase from a year ago and  31% growth from September. 

• Aito also reported a record delivery number of 12,700 units last month. The Huawei-backed brand does not report its delivery figures consistently, but its Shanghai-listed manufacturer Seres posted sales of 40,389 EVs for the first nine months of the year. 
• The two companies appear to have taken an early lead in an emerging battlefield for partially autonomous technology among consumer carmakers. More than half of the orders of Aito’s redesigned M7 SUV were placed for versions with Huawei’s Advanced Driving System, Chinese media outlet Caixin reported on Oct. 7, citing company insiders. 
• The Max versions of Xpeng’s G6 crossover, which features the company’s XNGP assisted driving technology, accounted for 70% of total orders in the first month after the launch, chief executive He Xiaopeng said in August. Both companies said their vehicles would be able to travel autonomously most of the time in dozens of major Chinese cities by the end of the year. 

EV startups: Li Auto also accomplished a delivery milestone last month, distributing 40,422 vehicles, making its year-to-date deliveries 284,647 units, the highest among the country’s nascent EV startups. The company has upped its goal to 50,000 units for the remaining two months of the year, CEO Li Xiang said on Wednesday on the Chinese Twitter-like platform Weibo.

• NIO’s October delivery of 16,074 units represented a 59.8% growth from this time last year and a slight 2.8% increase month over month. The company has delivered 126,067 vehicles as of October this year, still far from the annual goal of 245,000 units revealed by CEO William Li in March. It is now aiming for monthly delivery of more than 20,000 units in the fourth quarter of 2023. 
• Leapmotor’s delivery of 18,202 EVs last month comes after the Zhejiang-based EV maker recently announced a deal with European major Stellantis for a $1.6 billion war chest and turned its negative gross margin into a positive for the past quarter. Rival Hozon delivered 12,085 units, representing a decrease of 32.9% year-on-year and 8.5% month-on-month. 

Established majors: BYD’s growth momentum continued to some extent in October as the company saw sales surpassing 301,000 vehicles with a mild 5.2% rise from a month earlier. Analysts expect China’s biggest EV maker to achieve its annual goal of selling 3 million cars this year, as the company on Monday launched a wagon version of its popular Song SUV and readied to sell its long-anticipated Bao 5 off-roader.

• Sales for Aion declined 19.6% from a month earlier to 41,503 units, as the GAC subsidiary ramps up production of its new models, company insiders told financial media outlet CLS. Changan-affiliated Deepal delivered 15,513 vehicles in October, a 10.7% decrease from September. 
• Zeekr delivered 13,077 vehicles last month, up 29.2% from a year ago and 8.5% from September. On Aug. 11, the two-year-old premium EV brand, set up by Volvo parent Geely, cut the price of its 001 hatchback by up to RMB 37,000 to RMB 269,000 for a limited period until the end of this year. 
• Voyah saw its deliveries grow 21% on a monthly basis in October after the Dongfeng-backed EV maker launched its redesigned Free SUV in August, with the model arriving 15% cheaper than the previous version and equipped with Baidu’s advanced driver-assist system. 

Context: Retail sales of new energy passenger vehicles, including all-electrics and plug-in hybrids, are expected to reach 750,000 units in October, up 34.6% year-on-year and 0.9% month-on-month, according to estimates from the China Passenger Car Association. The past two months, known as “Golden September, Silver October,” are traditionally peak seasons for auto sales in China.

Chinese telecom giant Huawei has applied to register the trademark Far Ahead in the fields of transportation tools and scientific instruments, according to China’s trademark platform Tianyancha. “Far ahead” became a trending term on the Chinese internet after the surprise early release of Huawei’s Mate 60 series of smartphones in August, which came with advanced chipsets despite the Chinese tech company being a major target of US sanctions. The trademark is currently pending review. 

Why it matters: Having seen its tech capabilities limited by US chip sanctions, Huawei has ridden a wave of nationalist approval in China following the release of its Mate 60 line, which came equipped with a better chip and higher processor power than many industry observers had thought possible. 

Details: Yu Chengdong, CEO of Consumer Business at Huawei, has repeatedly used the phrase “far ahead” to describe the tech gap between Huawei and its competitors during product launches. Huawei fans often use the phrase as a rallying call on social media. Huawei’s detractors have also utilized this term to satirize the company’s advertising and messaging.

• Huawei’s use of the term “far ahead” first came at the launch event of its Mate 40 smartphone in 2020, according to local media outlet ThePaper. During a presentation of the Mate 40’s features, Yu used the phrase 14 times. Last year, Yu again used “far ahead” to describe the advanced satellite messaging function of the Huawei Mate 50 series, further boosting the popularity of the phrase in China.
• In August 2023, Huawei launched the Mate 60 Pro series, featuring the self-developed Kirin 9000s chip, manufactured in China by Semiconductor Manufacturing International Corp (SMIC). Related short videos with the tag “Far Ahead” went viral on the Chinese internet. For instance, videos on Douyin (the Chinese version of TikTok) with this tag have gained 960 million views.
• Huawei reportedly plans to ship between 60 to 70 million smartphones in 2024. Sources have told local media outlets that Huawei has placed sufficient orders from its supply chain to guarantee the fulfillment of this shipment goal for the year 2024.
• On Oct. 27, Huawei released details of its sales performance for the first three quarters of 2023. During this period, the firm achieved sales revenues of RMB 456.6 billion ($62.39 billion), representing a year-on-year increase of 2.4%, with a net profit margin of 16%. Huawei stated that these results were in line with expectations, though the company did not disclose specific figures for its various business streams during the period.

Context: Thanks to the newly launched Mate 60 series, Huawei’s domestic shipments in the third quarter increased by 37% compared to the same period last year, according to market research firm Counterpoint. Huawei’s share of China’s smartphone market has risen to 14%, making it the fifth largest company in the sector. 

• On Monday, Huawei announced that downloads of its HarmonyOS 4, which was unveiled in August, had topped 100 million. One of the key updates in HarmonyOS 4 is the ability to customize the home screen, allowing users to change system fonts, colors, clock styles, and widgets according to their preferences.

Huawei has obtained a smartphone microscope-camera technology patent, with the lens magnifying the photographed object from 20 to 400 times by a minimum distance of approximately 5 millimeters and the phone able to analyze the image for bacteria, according to a recently published report by the United States Patent and Trademark Office (USPTO). 

Why it matters: As competition in the phone market continues to intensify, Huawei has been striving to capture the attention and loyalty of consumers by introducing new features, and will be hoping that its microscope-camera can give it a competitive edge.

Details: At present, Huawei has not announced whether the microscope-camera patented technology will be used in the next generation of its flagship phones, but the patent has already provided details of the microscope lens and how it could be used.

• The advanced feature utilizes two cameras: one regular camera for capturing images and another micro-camera for analyzing hygiene. In the provided screenshot, the phone captures an image that includes an apple and a hand. When put into micro mode, the phone will use voice, text, or other prompts to describe the health status of the object and provide suggestions for maintaining hygiene.

• Huawei’s patent also outlined several use cases for the micro-camera, including food safety assurance, kitchen utensil maintenance, personal hygiene assessment, children’s toys inspections, and pet hygiene monitoring. For example, users could utilize the micro-camera at home to detect bacteria on a vegetable’s surface or to monitor the cleanliness of kitchen utensils and appliances, such as coffee machines and microwaves. 
• Huawei submitted this camera patent application in 2021, according to the USPTO file. The patent description specifically highlights the identification of bacterial quantities in captured images and the provision of hygiene recommendations as particular concerns, especially as the patent was filed during the height of the Covid-19 pandemic.
• In 2021, Oppo introduced the Find X3 Pro, which is capable of magnifying subjects by a maximum of 60 times. But such a function is limited to macro photography instead of microscopic images.

Context: Over 350 companies have obtained licenses for Huawei’s patents through patent pools. Under these licenses, Huawei’s licensing revenue amounted to $560 million in 2022.

• In September, Huawei and Xiaomi announced a global patent cross-licensing agreement that covers multiple communications technologies including 5G.
• In August, Huawei launched the Mate 60 series with satellite call technology, which allows users to make or receive calls without the use of traditional terrestrial signals.

Aito, a Chinese electric vehicle brand backed by Huawei, has received more than 50,000 non-refundable orders for its redesigned M7 in less than a month. The orders follow the Sept. 12 public launch of the sports utility vehicle, which features Huawei’s Harmony operating system and assisted driving technologies. 

Why it matters: The latest sales figures, as revealed by a senior executive at Huawei, show tentative signs of a bounce-back for Aito from a months-long slump and could be a boost to the confidence of Huawei’s car manufacturing partners. 

• Aito has also been buoyed by Huawei’s comeback in the smartphone market with the recent launch of its Mate 60 Pro series, following the US ban on exports of advanced semiconductor technology to the Chinese technology giant. 

Details: The revamped M7 crossover has racked up more than 50,000 pre-orders with non-refundable deposits of RMB 5,000 ($685) as of Friday, Richard Yu, the chief executive of Huawei’s consumer business group, said in a post on Chinese social media app WeChat. 

• Yu described the growth momentum of the new M7 as “a miracle,” adding that more than 10,000 customers placed their orders over the past two days. He called on sales employees to ramp up delivery to meet the growing demand (our translation). 
• Accumulative orders per store averaged more than 80 following the launch on Sept. 12, according to figures posted Saturday by Sun Shaojun, founder of consumer behavior research agency CarFans. Aito said in June it operated a network of around 1,000 retail locations and service centers in 230 Chinese cities. 
• Sun added that a surge in store traffic for Huawei’s new smartphones has boosted the sales of the Aito-branded EVs, produced by Chinese manufacturer Seres, over the recent National Day holiday season. Huawei began selling EVs with its little-known partner via its retail network in 2021.
• Roughly 40-50% of the M7’s buyers are Huawei smartphone users and were coming to the stores for the Mate 60 handsets, Jefferies analysts wrote in an Oct. 5 note, citing an executive of a Chinese auto dealership. Customers compare the six-seater with Li Auto’s L7, BYD’s Tang, and the Ford Edge, analysts said.

Context: Huawei on Sept. 12 unveiled the redesigned version of the M7 SUV, featuring Huawei’s Harmony operating system at a starting price of RMB 249,800 ($34,299), which is around RMB 70,000 lower than the initial version launched a year earlier.

• The vehicle also comes with Huawei’s latest assisted driving software, ADS 2.0, which will allow it to travel by itself on busy urban streets nationwide as early as December, making it one of the most ambitious players in the Chinese self-driving car space.
• Huawei has offered future owners of the new large-sized plug-in hybrid early access to purchase its Mate 60 smartphones. The Mate 60 Pro flagship handset reportedly incorporates a self-developed 5G processor, a breakthrough for the Chinese tech giant following US sanctions in 2019. 
• Two-year-old Aito has seen sales slump during most of 2023 amid fierce competition from more established rivals such as BYD and Tesla. Seres, which produces Aito-branded EVs, recorded sales of around 33,000 units for the first eight months of this year, representing a 15.6% decline year-on-year. 
• Meanwhile, Huawei has partnered with several other domestic automakers including Changan and BAIC. It is also on track to launch the S7 with carmaker Chery in November, the first sedan under a new marque called Zhijie in Chinese that will compete against Tesla’s Model S.

Chinese premium electric vehicle brand Denza on Tuesday revealed a cheaper version of its advanced driver assistance system (ADAS) in collaboration with US chipmaker Nvidia, as the BYD affiliate ramps up efforts to compete against leading self-driving players such as Xpeng Motors and Huawei. 

Denza is also eyeing overseas expansion, having established its presence in the China market with year-to-date deliveries of nearly 80,000 EVs as of August. The company expects overseas sales to begin as early as next year, including in Australia, Southeast Asia, the Middle East, and Europe. 

Why it matters: The companies said the launch of the affordable assisted driving technology could reduce the barrier to a transition to intelligent mobility. The system facilitates Denza’s vehicles to navigate most highways in China as well as some busy urban streets in major domestic cities. 

• BYD launched the N7 crossover under the Denza marque in July, with the top-end version powered by Nvidia’s ​​DRIVE Orin processor, which offers 254 trillion operations per second (or TOPS). Now all N7 models can be equipped with Nvidia’s DRIVE Orin chips for automated driving, according to a Wednesday statement. 

Details: The new autonomous driving system will enable on-ramp to off-ramp driving, as well as automatic lane changing on Chinese highways, for Denza’s flagship N7 SUV. It has a price tag of RMB 15,000 ($2,053) and is powered by Nvidia’s DRIVE Orin processor, which can handle up to 84 TOPS. The N7 SUVs that feature the technology will have two lidar sensors removed to reduce costs. 

• The companies say that the higher-end version, priced at RMB 23,000, will allow the vehicles to function by themselves on bustling city streets for the daily commute, using a feature named City NOA (Navigate On Autopilot). Denza’s general manager Zhao Changjiang said the company would release its Highway NOA feature to N7 owners starting in December, followed by an over-the-air update of the City NOA early next year. 
• Tong Liu, vice president and general manager of China auto business at Nvidia, said that he was “impressed” by the efforts made by BYD in developing intelligent cars over the course of their three-year collaboration, calling BYD/Denza a “strong advocate” of commercializing self-driving technology (our translation). BYD’s Dynasty and Ocean lineups are also using Nvidia’s semiconductor. 

Context: Several Chinese auto and tech companies have announced ambitious plans for the adoption of assisted driving technologies for urban driving, akin to Tesla’s full self-driving (FSD) function that has yet to be made available in the country. 

• Volkswagen-backed Xpeng Motors in June launched its City Navigation Guided Pilot feature in Beijing and is on track to expand the capability in at least 50 domestic cities by the end of this year, while Great Wall Motor has set a target of covering 100 cities by 2024.
• In the meantime, Li Auto vehicles will be able to navigate on fixed routes for daily commuters in 100 major Chinese cities by year-end, following weeks of training with its collection of datasets. Rivals Nio and Geely’s Zeekr are also planning to roll out similar features later this year. 
• Huawei is by far the most ambitious company in the field in China, with its head of consumer business Richard Yu stating on Sept. 12 that Huawei’s self-driving system would be applicable nationwide for both highway and urban driving with Aito-branded EVs by December, Caixin reported. 
• BYD has made a series of moves in recent months to enhance its research and development capacity, especially for autonomous driving, including organizational restructuring and talent hiring. More than 80% of the 30,000 fresh graduates recruited by the company this year were research personnel. 

READ MORE: Baidu and Huawei take on global giants with new in-car software offerings at Auto Shanghai 2023

Nio took a giant leap into the smartphone arena on Thursday with the much-anticipated launch of its Nio Phone, the first handset designed by a Chinese automaker. The new device is hitting the market at a price comparable to the latest flagship offerings by Apple and Huawei. 

Having developed its own phone from the ground up, the electric vehicle maker expects to create an ecosystem across vehicles, devices, and services, which will provide a seamless experience for Nio users. The handset offers the purest form of the Android experience without any pre-installed apps or banner ads, chief executive William Li said during a press event in Shanghai on Thursday.  

Some of the standout features Nio highlights are a master remote control for vehicles with options to control everything from windows to seats, as well as seamless streaming of videos, music, and meetings from smartphone to car infotainment screen. Here’s what impressed us most about Nio’s first Android phone. 

Ultra wideband technology

Nio said the phone offers remote control for in-car devices which differs from most competitors by using Ultra Wideband (UWB) technology, an emerging wireless communication protocol that enables precise, speedy, and secure location tracking.

During a hands-on session where TechNode was present, a Nio ES8 SUV “greeted” the phone by turning its lights on when a Nio employee approached and automatically unlocked shortly before he reached for the door handle without taking out his phone. The smartphone also serves as a central hub to remotely operate the car’s air conditioning among other options at the touch of a single button. 

The short-range, high-bandwidth digital radio technology allows fast data transmission with increased security compared with other wireless standards such as NFC and Bluetooth, which are often absent from existing phone models produced by domestic makers such as Huawei and Xiaomi, according to Nio staff. The first initiative of this kind was announced by Geely-backed rival Meizu a month earlier. 

Several global automakers are also investing in the technology in collaboration with Apple. The US smartphone maker has reportedly been allowing BMW’s iX owners to unlock their cars using select iPhones or wearables since 2021, although most carmakers are currently unable to leverage the technology with Apple’s devices, Nio CEO William Li previously told Chinese reporters.

In-car connectivity

TechNode reporters also played the hit racing game title Asphalt on the in-car display with a Microsoft Xbox wireless controller. It offered a smooth experience which did not freeze or crash, as it runs in the smartphone’s background enabled with 5G services and a Qualcomm semiconductor. 

Nio’s in-car experience also allows users to stream videos on Bilibili, follow turn-by-turn navigation on Amap, or transition to live meetings on Dingtalk from their phones through the car’s infotainment screen. Huawei earlier announced a similar Super Terminal feature, while Geely claimed such capabilities with the recent launch of its new Meizu flagship series and operating system, Flyeme Auto.

It is worth pointing out that the feature is different from screen mirroring, as it actually creates a “doppelganger” of the Nio Phone on the in-car dashboard so that users can use the smartphone and the in-car system simultaneously yet separately. 

With its first self-branded device, Nio is one of the few Chinese automakers capable of integrating users’ smartphones with their car’s infotainment system at the operating system level. Such integration for Aito and Geely was enabled by their respective smartphone partners Huawei and Meizu. 

Specifications and prices

The Nio Phone is powered by a Qualcomm high-end Snapdragon 8 Gen 2 processor, the same as existing flagship offerings such as Xiaomi’s Mi 13, Oppo’s Reno 11 Pro, and the Meizu 20. It also comes with a 6.81-inch 2K+E6 Samsung screen, providing a resolution of 3,200 x 1,440 pixels, a 120Hz refresh rate, and a peak brightness of 1,800nits.

The device features a triple-camera system that includes three 50MP cameras and has a large battery of 5,200mAh, supporting 50 W wireless charging and 10 W reverse charging. An entry-level version weighs 212 grams and measures 165.19 x 75.54 x 8.9mm. 

The Nio Phone’s three versions come in seven colors, and are priced between RMB 6,499 and RMB 7,499 ($890-$1,027). Shipment is scheduled for Sept. 28. For comparison, Huawei’s latest Mate 60 Pro flagship phone costs from RMB 6,499, while Apple on Sept. 15 began selling its iPhone 15 series with a starting price of RMB 5,999 in China. 

Well, it’s here. In June, the rumors were there’d be a 5G Huawei phone towards the end of the year. It hit the shelves two or three months earlier than expected.

In my previous article, I argued that Huawei’s handset would be more of a domestic play, and I stand by that argument. While I did argue Huawei and SMIC creating a 7nm chip was no surprise, what has been produced has nevertheless surprised some, including myself.

So what is good about this chip? How will Huawei and SMIC progress from here? And what does it mean for others in the industry?

The positives

Let’s start with the positives from a Chinese point of view. Although not 100% confirmed, as we are not sure who else could possibly fabricate this chip for Huawei, SMIC has seemingly produced a true 7nm density chip without EUV. (Some still speculate that SMIC isn’t responsible.) Despite what many believe this was always possible – TSMC did it back in 2018 and SMIC did it by itself earlier in 2023 with a bitcoin mining chip. So no surprises here. When it comes to using DUV equipment to create 7nm density designs SMIC now seems to be on a par with the rest of the world. What the yield looks like is unknown, I can’t believe it is as low as 10%, and also it cannot be as good as an EUV process. I can only speculate that it is good enough and will improve as SMIC gets more customers for this process. With government subsidies, the economics of low yields mean less to SMIC than they might to other foundries.

The other positive is its RF front-end. While Huawei was always a leading modem designer, it previously relied on US suppliers like Skyworks and Qorvo for the RF front-end. This is no longer the case with the Kirin 9000S. It’s impressive that a completely self-developed front-end works at 5G speeds, even if the OS still says 4G.  

The negatives

Nevertheless, there are a few negatives. Despite the rhetoric, this is not a completely indigenous Chinese chip. It is based on Arm IP, it uses SK Hynix memory, it was presumably designed somehow using US EDA tools (I would like to know if it wasn’t), and the fabrication process used foreign equipment from the likes of ASML, AMAT, LAM, TEL, KLA, etc.

Sanctions to date haven’t stopped China’s equipment imports. In fact, they are higher than ever on this front rather than finding ways around sanctions. China hasn’t really needed to do anything. The equipment that can be used for 28nm can be repurposed for 7nm, and perhaps 5nm in a couple of years. While this is a positive for China, it does mean that it is still reliant; products from the likes of SMEE are still far behind. SMIC is keeping quiet. It won’t want to have any stricter sanctions placed on it, but really, the only way to truly stop it would be to limit or ban all sales into China for all such equipment. This is unlikely to happen.

The use of SK Hynix memory is also interesting. This must have come from old stockpiles as SK Hynix was not aware of any recent sales to sanctioned Huawei. This answers the question as to whether domestic DRAM or NAND is ready for such applications yet, and it seems the answer is no, as Huawei opted for SK Hynix memory which was first announced in 2020. We don’t know how much is stockpiled, so it could be possible that future versions of the chip will be forced to change to domestic suppliers.

The fallout

The popular opinion in Chinese society is that China has broken US sanctions, Huawei and SMIC have saved China, and the Huawei phone deserves all the praise it can get. In one sense this is true. It performs like a leading edge chip from a couple of years ago and is easily good enough for any application today. I myself use a phone more than two years old.

There are others outside of China that completely dismiss this chip as a low-yield propaganda project. The likes of MediaTek announced its own equivalent chip using TSMC’s 3nm process almost at the same time as Huawei’s announcement. Huawei itself used to use TSMC’s 5nm process before sanctions, so in fact, sanctions have caused Huawei to go backward.

The truth is in between of course. This is a serious chip, but not surprising. We know 7nm chips can be created using multi-patterning on the ASML 1980i series of DUV lithography machines, and this unsurprisingly is what SMIC has done. We know Huawei subsidiary HiSilicon is great at designing handset chips, and this is what they’ve done extremely well here.

Threats and restrictions remain, however, sanctions could get tighter. SMIC could be punished for supplying Huawei.; it does have a considerable foreign business that could be threatened for example. Could Huawei itself be sued in any way for using SK Hynix chips or perhaps illegally using US tools? If SMIC produced a chip where its customer could not prove it was using properly licensed tools, this could also be an issue for SMIC. I know from my own experience that not having a proper license for EDA tools in China can be quite common. This in turn could restrict any sales outside of China. Even if all this is fine, selling outside of China will still be difficult. This is an expensive $1,000 phone with no Google services installed and a chip performing to the standards of two years ago. The average consumer is not going to want to install Google services manually themselves, let alone fork out $1,000 for doing so. Patriotic marketing does not translate outside of China.

Finally, this new device may mean hard times in the Chinese market for Huawei’s competitors and other chip companies. As Huawei’s sales dropped in recent years, Oppo, Vivo, Xiaomi, and Apple, all took a piece of the pie. This in turn led to more sales for Qualcomm and MediaTek who supply these other handset companies. Will Huawei’s sales rise to eat into that of other Chinese handset companies or Apple’s? If Apple sales in China remain strong then Huawei’s phone will only serve to take market share away from other Chinese brands and hurt Qualcomm and MediaTek as well in the process.

Chinese telecoms giant Huawei is set to complete a month of high-profile statement-making moves with its autumn product launch on September 25, with the company confirming the event on Chinese microblogging platform Weibo on Thursday. The date marks the anniversary of the return to China of Sabrina Meng (Meng Wanzhou), Huawei’s chief financial officer, who was under house arrest in Canada for three years due to an extradition request from the US, where she faced fraud charges.

The announcement comes after Huawei’s much-hyped surprise launch of pre-sales for its Mate 60 Pro phone, during the visit to China of US Secretary of Commerce Gina Raimondo. The phone features a self-developed Kirin 9000S chip that uses 7nm technology despite US sanctions aimed at limiting China’s chip-developing capabilities. 

Why it matters: Huawei is hoping to re-establish itself in the mobile phone market after three years of US restrictions. The autumn launch also pits the company against two major Chinese phone manufacturers, Xiaomi and Oppo. 

Details: The launch of the new Mate series means that Huawei, Oppo, and Xiaomi have now all updated their flagship phones ahead of November 11, a major shopping festival in China. 

• Oppo launched its latest foldable offering the Find N3 Flip on August 29, the day Huawei started pre-sales of its Mate 60 Pro without warning. The following day, trending topics on Weibo were dominated by discussion around whether the Huawei Mate 60 Pro was 5G-capable or not. Huawei unveiled the Mate 60 Pro+ and Mate X5 foldable on September 8, coinciding with the official sales release of the Oppo Find N3 Flip.
• Some industry analysts have speculated that Huawei picked these dates for maximum marketing value. It was not the first time that Huawei appears to have picked a strategic date. On August 23, several industry sources said Huawei planned to hold a product launch event on September 12, the same day as Apple’s latest product launch.
• Huawei may have invested heavily in promoting its brand and products on Weibo over the last two weeks. Various hashtags related to Huawei products have featured prominently on the platform’s trending topic list, for instance #HuaweiMate60 (1.5 billions views and 238,000 discussions), #HuaweiMatex5 (600 million views and 40,000 discussions), and #HuaweiProductLaunch (200 million views and 29,000 discussions). Discussion figures are a combination of  posts, likes, comments, and forwards. 
• Xiaomi has been discreetly preparing to release its annual flagship Xiaomi 14 series at the same time. The device will be the first Android phone powered by Snapdragon 8 Gen 3 on the global market. On Wednesday, sources told IThome that Xiaomi will release its Xiaomi 14 series in early November, with products positioned in a similar manner to the iPhone 15 Pro/Pro Max. Orders placed with online and physical stores have increased by 60% compared with the same period last year, the IThome report added.
• There has been no official announcement regarding products Huawei will showcase at its upcoming launch event, though there has been speculation that the firm may introduce the Mate 60 series and Mate X5 foldable. The centerpiece of the event will be the unveiling of the Kirin 9000S 5G processor, according to local media outlet IThome.

Contexts: Huawei has enjoyed a wave of nationalistic support in China, with backing for its new products from numerous official channels and state media accounts on social media. 

• On Tuesday, Martin Yang, an analyst from US-based financial firm Oppenheimer, said that Huawei’s new flagship phones may lead to a decrease in iPhone shipments in 2024 by 10 million units.
• On Thursday, Huawei increased its 2023 mobile phone shipment target to at least 40 million units, according to industry sources.

On Tuesday, Huawei launched pre-sales of its Mate 60 Pro flagship phone on its official website without any advance publicity and two weeks before the official launch event, catching the domestic smartphone industry off guard and triggering heated online discussions. Currently, consumers can directly purchase one of a limited batch of Mate 60 Pro models with 12GB+521 GB storage, priced at RMB 6,999 ($960). This is the first time in Huawei’s history that the company has started the sale of the annual flagship before the product launch event and was reportedly in response to online leaks in advance of the device’s official unveiling in mid-September. 

Huawei did not disclose any specific details about the processor, leaving many Chinese citizens curious about the rumored return of its 5G connectivity. Currently, as far as the multi-party test results are concerned, the peak network speed of the Mate 60 Pro meets 5G network speed standards.

Why it matters: In 2019, the US government imposed a trade ban on Huawei, citing national security concerns. This move barred the company from purchasing advanced chips and using Google services for its new smartphones, causing Huawei’s smartphone sales to plummet. However, the Mate 60 Pro model, which reportedly incorporates a self-developed 5G processor, could pave the way for Huawei to recapture some of its lost share of the smartphone market.

Details: On Tuesday, the total number of Huawei Mate series mobile phones shipped worldwide reached 100 million units, according to a post from Huawei’s Weibo account. The company said that to celebrate this milestone, it was launching the Huawei Mate 60 Pro Pioneer Program, giving customers the chance to try out the latest flagship device in advance.

• Following the official release, thought to be taking place on Sept. 12, consumers will have the option to purchase the Mate 60 Pro either in physical stores or online on Vmall. Many Chinese tech bloggers have already tested the new device firsthand, confirming that its internet speed can reach up to 5,00 Mbps, similar to the speed of the iPhone 14 Pro.
• The software benchmark platform AnTuTu identified the Huawei Mate 60 Pro processor as the Kirin 9000s, Huawei’s self-developed chipset. The Kirin 9000s is designed with a 12-core configuration using a 2+6+4 architecture. It consists of two A34 cores, six customized A78AE cores, and four A510 cores. The highest clock speed it can achieve is 2.62GHz. Notably, it obtained an AnTuTu benchmark score of 699,783, surpassing the iPhone 12 Pro’s score of 683,146. For comparison, the AnTuTu benchmark score for the iPhone 14 Pro is 935,157 for overall performance.
• The new model’s CPU performance outperformed the Snapdragon 888, although it did not quite match up to the Snapdragon 8 Gen 1 and Snapdragon 8+, according to the same report from AnTuTu.
• In another noteworthy feature, the Mate 60 Pro offers support for satellite calls and messaging, albeit likely limited to China. The device uses China’s Tiantong-1 satellite system for its satellite calling feature, enabling users to make phone calls without relying on conventional terrestrial signals. 
• The Huawei Mate 60 Pro also features a 6.82-inch OLED screen with a screen resolution of FHD+ 2720 x 1260 pixels. It is equipped with a triple rear camera system, comprising a 50MP main camera with an adjustable aperture (ranging from f/1.4 to f/4.0), a 48MP 3.5x telephoto camera (with f/3.0 aperture and macro mode), and a 12MP ultrawide lens.

Context: In the second quarter, the top five smartphone brands in the global market were Samsung with a 20% market share, followed by Apple at 17%, Xiaomi at 12%, Oppo at 10%, and Vivo at 8%, according to Counterpoint.

In June, news emerged that Huawei will potentially come back into the 5G smartphone space by the end of 2023. This information apparently was provided to research firms anonymously from “industry sources including Huawei’s suppliers”. Huawei would not comment on the news, and neither would SMIC, the fab Huawei is using.

But what would a 5G phone using SMIC N+1 7nm process look like? Could Huawei reach its 2019 peak again? Who would buy such a phone? Is there any hope for Huawei’s handset future?

The past

In the not-so-distant past, Huawei handsets were the second best-selling brand in the market. In 2019, Huawei handsets accounted for roughly 15.6% of global handset sales, beating Apple but falling just short of Samsung. This amounted to nearly 241 million Huawei phones being sold that year.

Most of these phones – not all, but definitely the high-end phones – used Huawei’s own Kirin application processor chips. They were 5G enabled, ran Android, were fabricated at TSMC on the latest process nodes, and very rarely got anything but positive reviews. At the time, Huawei and HiSilicon had access to the latest EDA tools from Synopsys and Cadence, the latest IP from Arm among many many others, and full access to the Google ecosystem for the export market.

The present

Since 2019, Huawei and HiSilicon have lost access to all these suppliers to varying degrees. No access to properly supported EDA tools and foreign fabs has meant it has moved flagship phones over to Qualcomm as it can no longer manufacture its Kirin AP. Restrictions have also meant its phones are now limited to 4G as it is not allowed to buy 5G-enabled chips and is not able to produce them either. Using Qualcomm chips still means Huawei sells capable phones like the Mate 50, but it is the lack of Google services that means its products are now difficult to recommend in Western markets, even if they do take nice pictures of the moon. 

Even in China, where Google services do not exist, Huawei’s phone sales plummeted in 2020 and 2021, with the brand dropping out of China’s top five. But now, in 2023, Huawei’s sales have increased by 76% year-on-year in Q2 bringing the brand into joint fifth place with Xiaomi at around 13% of the China market. In a market where all other brands (other than Apple) are losing sales, Huawei is somehow managing to increase its own at the expense of BBK, its previous subsidiary Honor, and Xiaomi. 

Why anyone would buy a worse phone at the same or more expensive price can only be down to marketing and a sense of national pride, as although its phones are good, so are Oppo’s and Vivo’s – and they have 5G. Whatever it may be, Huawei has obviously done a great job at reviving its phone brand in the last year within China. Maybe aftermarket 5G enabling Huawei smartphone cases have helped.

The future

So let’s say the rumors are true. Huawei will have its 5G phone by the end of the year using its own chip. Unlike TSMC EUV 7nm, SMIC has only been able to achieve its 7nm through multi-patterning, basically doing multiple lithographic exposures to get the desired resolution. I expect SMIC’s approach will result in low yields and have limited capacity, meaning the resulting chips could potentially be more expensive. This could be compounded by the fact that Huawei handset APs are usually for internal use, not to be sold to other phone brands, so there is limited scale compared to Qualcomm or MediaTek. One could envision Huawei allowing other brands to use it to help SMIC scale up, but how would its performance compare to Qualcomm and MediaTek? Would other brands even want to buy it if it cost more and performed worse?

This is clearly very strategic for China, and would be a big win, but it puts SMIC in a difficult position. Historically it has always kept its head down, but announcing such a feat could put it in the spotlight for further sanctions and equipment it needs to expand its mature node capacity.

Perhaps the chip isn’t the key factor to Huawei’s future global success. I feel it will certainly become a successful brand in China. China-designed chips, China-manufactured chips, and a China-made OS are all very potent selling points in the market. From a global perspective,  it would still have a worse chip, even compared to other Chinese brands, but more importantly, no Google services, which is a killer for most of the rest of the world.

This will be a win for Huawei and for China, but Huawei won’t become the Huawei of 2019 any time soon. In my experience, HiSilicon has always had a great chip design team, but now apparently using its own EDA tools – and I suspect still some Western tools (supported or not) – along with a new process at SMIC rather than TSMC, means this chip won’t be world beating and potentially not commercially viable unless yields and scale are improved. For now, this will be a domestic play.

Huawei achieved sales revenue of RMB 310.9 billion ($43 billion) in the first half of 2023, with a year-on-year increase of 3.1%, according to its H1 business results announced on August 11. During the first half of this year, the Chinese telecom giant’s net profit rate reached 15%, in contrast to the mere 5% achieved in the same period last year. Huawei attributed the rising profits to its enhanced management, improved operational efficiency, strategic sales adjustments, and product optimization. The company launched the flagship phones P60 series, Mate60 series, and foldable MateX3 in H1.

Notably, Huawei’s revenue from its consumer business (terminal devices) in the first half of 2023 increased by 2.2% year-on-year, reversing the downward trend observed since 2021. 

Why it matters: Huawei’s phone business has experienced a relatively tumultuous trajectory in recent years, primarily due to the stringent chip sanctions imposed by the US since 2019. According to company data, in the first half of 2021 and 2022, the revenue growth of Huawei’s consumer business was -47% and -25.4%, respectively. While the 2.2% increase in consumer business revenue signals a turnaround for Huawei, the growth is still relatively modest. The figures come at a time when Huawei has been trying to regain its market share in the mobile phone business, while simultaneously exploring new directions and growth prospects for other business departments.

Details: Sabrina Meng, the rotating chairperson of Huawei, described the company’s business performance in the first half of the year as “stable”, according to Beijing Business Today. Huawei’s business structure comprises five key components, which include its ICT (Information and Communications Technology) infrastructure business, terminal devices, digital energy, cloud services, and the newly added smart vehicle segment.

• In the first half of 2023, the ICT infrastructure business led Huawei’s positive results with a revenue of RMB 167.2 billion ($23.12 billion). The firm’s terminal business generated revenue totaling RMB 103.5 billion ($14.31 billion), while the cloud services and digital energy services garnered RMB 24.1 billion ($3.33 billion) and RMB 24.2 billion ($3.35 billion), respectively. However, Huawei’s car business, which was established in 2019, only achieved a relatively modest revenue of RMB 1 billion ($140 million).
• Next year, Huawei will launch a comprehensive range of commercial 5.5G network equipment aimed at facilitating the commercial deployment of 5.5G technology, the company revealed at the Mobile World Congress Shanghai 2023 in June.
• Huawei did not disclose the detailed shipment figures for its smartphones. According to a July report by IDC, Huawei has reclaimed its position among China’s top five smartphone brands in terms of revenue, with a year-on-year rise of 76% in domestic sales in the second quarter of 2023. Huawei’s return to prominence can be attributed to the impressive sales performance of its P60 series and foldable Mate X3 model, according to the report.
• Launched on August 4, Huawei’s self-developed operating system HarmonyOS 4 saw over one million downloads in three days, according to the company. The HarmonyOS ecosystem currently includes more than 700 million connected smart devices, said Richard Yu,  the CEO of Huawei’s consumer department. 
• In July, Huawei announced the launch of its Pangu Models 3.0 along with AI cloud services. This offering comprises a set of pre-trained models that can be quickly customized for various businesses. Currently, Pangu models are being used across multiple sectors, such as finance, manufacturing, pharmaceutical R&D, coal mining, and railways.
• Aito, the car brand co-developed by  Huawei and Cyrus, saw sales decline significantly, according to its latest results. Despite recording monthly sales of 12,000 units last October, according to Beijing Business Today,  this figure plummeted to fewer than 3,000 units in February and March. 

Context: Huawei has maintained its substantial investment in R&D as it strives for a new growth point. In 2022, the company’s R&D expenditure was approximately RMB 161.5 billion ($22.33 billion), accounting for 25.1% of the company’s annual revenue, according to its 2022 annual report.

Note: This article was first published on TechNode China (in Chinese).

China has been making strides in vehicle electrification for some time, with an eye to digitizing its entire automotive industry. As a key part of this shift, Chinese EV makers are currently competing to produce the most comprehensive assisted driving systems, endeavoring to turn their offerings into key selling points as the market matures.

Here, TechNode takes a look at the assisted driving software of three leading players in the Chinese EV sector.

Xpeng’s NGP advanced driver assistance system

The Advanced Driver Assistance System (ADAS) is the standout feature of Xpeng’s new model, the G6. The car has possibly the most advanced autonomous driving technology in China: with its 31 smart sensors, the G6 outperforms its competitors. Dual forward-facing LiDAR sensors, millimeter-wave radar, cameras, and ultrasonic radar throughout give the vehicle the tools to sense and see all around its body. 

In urban settings, the City NGP (Navigation Guided Pilot) smart navigation-assisted driving tool enables seamless travel along accessible city roads. Once a user inputs a destination and activates the tool, the vehicle maintains its position within its chosen lane, performs necessary lane changes or overtaking maneuvers, merges on and off roads, navigates around stationary vehicles or obstacles, recognizes and passes through traffic light intersections, circumvents loop roads, steers clear of construction zones, and evades pedestrians and non-motorized vehicles, on its way from inputted A to B.

The G6 comes with Lane Centering Control (LCC), a Lidar-based adaptive cruise and lane-centering feature that also enables the car to maintain optimal cruising speed. Linked to Xpeng’s advanced XNet neural network, the system processes 4D information on dynamic targets, including size, distance, position, and speed of vehicles and two-wheelers, as well as 3D information on static targets: lane lines and road edges from above.

Compared to Xpeng’s first-generation visual perception architecture, the XNet employs neural networks to replace manual post-processing, enabling end-to-end algorithm optimization. It boasts enhanced 360-degree perception, covering more than eight lateral lanes, demonstrating superior performance, and improving lane change success rates. Uniquely, this vehicle relies on vision-based recognition and display capabilities, becoming the first in the industry to not rely on mapping. It includes detailed rendering and visual representation of traffic participants and road infrastructure surrounding the vehicle. Drivers can see lane markings and nearby vehicles on the in-car map. XNet also recognizes and displays traversable areas, traffic lights and turn signals, setting a new industry standard. 

On highways, the system can efficiently execute autonomous lane changes, lane selection, and overtaking maneuvers by assessing the surrounding environment and required driving tasks, such as avoiding traffic restrictions and adhering to speed limits. It also provides seamless on and off-ramp transitions while switching between high-speed driving modes, ensuring improved straight-line stability and enhanced cornering.

Li Auto’s City NOA smart driving 

By putting strategic effort into smart software and electric power, Li Auto has made huge strides in smart space (SS) R&D, smart driving, and high-voltage fully electric platforms. With its own large model called Mind GPT, Li Auto will soon begin testing its City NOA smart driving system.

Li Auto’s smart driving system doesn’t depend on high-precision maps, as it utilizes a bird’s eye view (BEV) large model to perceive and comprehend road structure information in real time. The BEV large model has undergone extensive training, enabling it to generate stable road structure data on most roads and intersections in real time. Neural Prior Net (NPN) refers to a set of neural network parameters which are difficult for humans to directly interpret when dealing with complex intersection patterns. The large model effectively deciphers these patterns. Compared to high-precision maps, NPN replaces human rules with network models for better understanding and use of environmental information.

For complicated intersections, it’s essential to conduct advanced intersection NPN feature extraction. On a vehicle’s second approach to an intersection, the previously extracted NPN features are retrieved and combined with the BEV feature layer from the vehicle’s large-scale perception model, resulting in what the company says is an optimal perception outcome. In addition, the “AI driver” must comprehend the traffic light regulations at the intersection, posing another challenge on urban streets. The prevailing method involves devising a rule-based algorithm to interpret traffic lights and road use intentions. Li Auto prefers to rely on a large model to address this issue.

To navigate complex urban roads, Li Auto trained a Traffic Intention Net (TIN) to do away with the need for software to interpret pre-set human traffic regulations or even know the exact position of a traffic light. The system will input video footage into the TIN network model, and it will directly indicate the appropriate vehicle maneuver – turn left or right, go straight, or stop and wait. By analyzing the reactions of a large number of human drivers to signal changes at intersections, the performance of the TIN model is highly refined. To ensure the “AI driver” emulates human drivers’ judgment and driving patterns, Li Auto trained the AI with a huge amount of real driver behavior data, making NOA’s decision-making and planning more human-like, while maintaining safety and adherence to traffic regulations.

NOA is designed to accommodate more than 95% of commuting situations for car owners. While using NOA for commuting, each model will receive continual updates and training. In the latter half of the year, Li Auto plans to introduce the NOA commuting feature and expand urban NOA coverage, with the goal of allowing early adopters to commute using NOA’s navigation-assisted driving.

Huawei Aito’s second-generation autonomous driving system

The M5 smart drive edition released by Huawei’s automotive brand Aito sees the debut of the telecom giant’s second generation autonomous driving system ADS 2.0, which offers a comprehensive fusion perception system made up of various sensors working together to provide 360 degree coverage. This fusion perception system consists of 1 LiDAR, 3 millimeter-wave radars, 11 camera sets, and 12 ultrasonic radars, allowing for distance detection of up to 200 meters. The Aito M5 employs network technology based on fused BEV perception capabilities that can identify objects outside the standard obstacle whitelist. Paired with a road topology inference network, the Aito M5 is designed to drive efficiently with or without a map, equipped to see, understand, and navigate regardless.

The Aito M5 can handle changing light conditions in tunnels and minimize the impact of nighttime glare. It can accurately identify pedestrians, vehicles, and obstacles with ease. On urban roads, the car actively maneuvers around obstructions caused by other vehicles and the company claims it can deal with pedestrians carelessly opening car doors or unexpected cyclists emerging from a blind spot. Even in the most challenging conditions, such as intense glare at night, the Aito M5 can brake at speeds of up to 50 km/h.

With assisted driving capabilities, the M5 can merge onto and off highway ramps with a 98.86% success rate. The reliable long-distance piloting system has an average Miles Per Intervention (MPI) of up to 114 km, rivaling experienced drivers.

The Huawei ADS 2.0 package comes with 19 features as-standard, such as high-speed Lane Centering Control (LCC), urban LCC, and high-speed Navigation-based Cruise Assist (NCA). Additionally, the optional advanced package offers urban NCA, Automated Valet Parking Assist (AVP), and enhanced LCC for urban areas.

Huawei’s Aito is the first car brand to achieve high-speed urban smart driving capabilities without relying on high-precision maps, bringing the assisted driving experience significantly closer to the L3 level of autonomy. According to Huawei’s roadmap, its mapless functionality will be introduced in 15 cities, including Shanghai, Guangzhou, and Shenzhen, during the third quarter of 2023. By the fourth quarter, coverage will encompass 45 cities.

A sophisticated race to autonomy 

The race to launch assisted driving in the Chinese market is well underway. As time goes on, we can expect more car companies and self-driving solution providers to join. China’s Ministry of Industry and Information Technology (MIIT) plans to introduce an updated standard system guide for smart, network-connected vehicles, which will accompany the competition as it intensifies further.

As China’s car industry quickly embraces new energy vehicles, the country’s tech giants and startups are competing head-on with established global auto parts manufacturers to help automakers develop unique in-car software experiences and assistant driving features.  

Tech majors like Huawei and Baidu are positioning themselves as automotive suppliers by providing comprehensive software systems along with a full range of electronic components for the smart, connected, and electric vehicles of the future. Meanwhile, global tier-1 suppliers Bosch and Continental are localizing more of their tech capabilities to adapt to the fast-changing Chinese market.

Here’s a roundup of some of the upcoming automotive tech that debuted at this year’s auto show in Shanghai.

Baidu: Seeking long-term ties with carmakers

Two years after setting up a dedicated unit to develop self-driving tech for consumer cars, Baidu made a strong commitment to automakers by declaring itself their “best partner” in smart, electric vehicles in China in a statement made on April 16 ahead of this year’s show.

Low-cost deployment is one of its major selling points. The search engine giant launched the Apollo City Driving Max on April 16, claiming it is by far its most powerful advanced driver-assistance system (ADAS). The AI giant also claims that the new system is the only pure vision-based approach for automated driving on Chinese urban roads, meaning it operates without the use of pricier lidar sensors.

Baidu also introduced its new high-definition mapping technology at a relatively lower cost than rivals, adopting a crowdsourced approach to compile map data to help EVs get around by themselves. “This is unique to Baidu,” said corporate vice president Rob Chu. The company expects such efforts to pay off in the long run, allowing it to form consistent and reliable partnerships with auto manufacturers.

Huawei: Competing against Tesla’s software offerings 

Huawei has had a bumpy ride after making a splash at Auto Shanghai 2021 with the public debut of its assisted driving technology, as two of its major manufacturing partners – BAIC’s Arcfox and lesser-known Seres – have both found themselves facing lackluster sales.

On April 16, the technology giant unveiled the second generation of its Advanced Driving System, which was designed to let vehicles navigate not only on highways but also around complex city streets like Tesla’s full self-driving beta software. Huawei’s consumer business head Richard Yu made the announcement in Shanghai, claiming that the Chinese telecom firm has surpassed Tesla in handling on- and off-ramps among other traffic scenarios, according to its testing results.

The system will be released to users in at least 45 Chinese cities by the end of this year, where high-definition mapping services are currently unavailable to them.The system was built upon multiple sensors and cameras to reduce the reliance on mapping. A high-end version of the Aito M5 electric crossover is the first model to adopt the technology, while the Avatr 11, co-developed by Huawei and its partners Changan and CATL, and the Arcfox Alpha S will also adopt the system. 

Bosch: Chinese OEMs a major growth driver

German auto supplier Bosch debuted its fourth-generation computing platform for in-car entertainment at the Shanghai auto show, highlighting the ongoing trend of cars relying on software to differentiate themselves in a crowded marketplace.

Entirely developed by its Chinese team, the information domain computer has undergone four upgrades over the past two years, facilitating automakers’ fast and customized development of in-car applications, according to Dr. Markus Heyn, chairman of Bosch’s mobility solutions business sector. This also enables vehicle owners a seamless and smart cockpit experience both in the vehicle and on the cloud.

Heyn said he was personally impressed by the wide range of new brands and electric vehicles that are on display at this year’s Auto Shanghai. “I am extremely proud that Bosch is a part of this rapidly growing and evolving industry and serves as a global partner for our customers in China,” added Heyn. Chinese original equipment manufacturers (OEM) accounted for nearly 60% of the mobility solutions business sector of the engineering group’s total sales in China last year.

Continental: Keeping up with China’s fast transition to EVs

Continental on Wednesday showcased for the first time a high-performance computer that is capable of assisted driving and body control, giving carmakers a more agile process of software development. More than 30 new vehicle models will be using Continental’s supercomputing solution by 2024, the company said, with GAC’s EV unit Aion becoming one of its early adopters.

The German auto parts maker sees standardization as a strength in keeping up with China’s fast transition towards smart EVs. The company set up a joint venture with local startup Horizon Robotics back in late 2021.

“A lot of the cost in ADAS is coming from developing specific software. We figure out what is a common part and roll out standard components in a fast and cost-competitive way, and then we add some specific functions to make a difference,” said Frank Petznick, head of the autonomous mobility business area at Continental. “I think this is the key [to success] in China and many Western companies have not understood that yet.”

Horizon Robotics: Landing BYD as a major client

This year’s Auto Shanghai also reflected the rise of domestic suppliers. Horizon Robotics is one of the Chinese suppliers helping auto companies to secure their supply chain and reduce costs. Horizon said on Tuesday that it will team up with Chinese EV leader BYD to develop software and hardware systems for automated driving to use in the latter’s cars.

Multiple BYD cars will be manufactured later this year based on Horizon’s Journey 5, which is made specifically for computing in connected and intelligent vehicles. The move marks “a significant achievement” in the two companies’ strategic collaboration since 2021, according to Dr. Yu Kai, founder and CEO of Horizon Robotics.

Backed by a list of auto majors including Volkswagen, Horizon already supplies tech to automakers including Geely and Li Auto. The company also announced a partnership with EV maker Hozon Auto on Tuesday to build assisted driving platforms set to hit the market as early as 2024.

On Thursday afternoon, Huawei updated its flagship smartphones P series and Mate series with P60 and Mate X3. The phone release was part of Huawei’s spring product launch, which took place in Shanghai. In a bid to show its relevance and strength in consumer electronics, Huawei released 10 new products. The entire event lasted for more than four hours, and was livestreamed via the Chinese telecom giant’s Weibo account and its official website, with views on the former peaking at 600,000. 

Why it matters: The release of so many new devices was seen as an attempt by Huawei to demonstrate that its product research and development capabilities have not been dented by years of controversy and constraints. “We have been sanctioned for four years, but the spring is warm and the future is promising,” Yu Chengdong, the CEO of Huawei’s Consumer Business Group, said at the product launch. Other Chinese tech executives, such as founder of the Chinese internet portal Sohu Zhang Chaoyang and Weibo CEO Wang Gaofei, also attended the launch event.      

Details: The Huawei P60 series and Mate X3 mark the first time that the two flagship series have been updated at the same time. The launch also appeared to dispel previous reports that Huawei was considering selling its mobile phone unit.  

• In addition to the two phones, Huawei also released its Huawei Watch Ultimate smartwatch, Huawei smart-band B7, Huawei FreeBuds5 and Huawei FreeBuds Pro 2+ earbuds, Huawei Mate Pad11 tablet, Huawei Enjoy 60 phone, Huawei Q6 router, and Huawei Qingyun G540 laptop. 
• The Huawei P60 series consists of the regular P60, the P60 Pro, and the premium P60 Art, with prices ranging from RMB 4,488 to RMB 10,988 ($653 to $1599). It features the world’s first smartphone with two-way satellite communication technology, which supports the sending and receiving of messages without a mobile network signal. 
• The camera system is made up of a 48-megapixel main camera, a 13-megapixel ultra-wide camera, and a 48-megapixel telephoto camera with night vision. Huawei claimed that the Ultra Lighting Main Camera, boasting an F1.4–F4.0 auto-adjustable physical aperture, helps produce high-quality images in both daylight and night conditions.
• The Huawei Mate X3 foldable range includes a basic model and a premium model priced at RMB 12,999 and RMB 15,999 ($1892 and $2329). Both feature a lightweight body, IPX8 waterproof design, dual 120Hz screen displays and a triple camera setup, which is set to rival other leading foldable phones on the market. The Mate X3 weighs 239 grams, a little heavier than the 233-gram Oppo Find N2, but 10% lighter than the Samsung Galaxy Z Fold4. 
• The Huawei P60 series and Mate X3 foldable are both powered by a Snapdragon 8+ Gen 1 processor and support 4G only. They run on the new operating system HarmonyOS 3.1, which will allow users to customize the lock screen with new options and different display features.

Context: “2023 will be Huawei’s first year of returning to normal operations, despite ongoing US restrictions becoming the new norm,” Huawei’s rotating chairman Eric Xu said in an annual New Year’s message to employees at the end of 2022.

• In 2022, Huawei announced it signed more than 20 new or extended licensing agreements for its patents. The company ranked fourth last year by the number of patent grants in the US, according to IFI Claims Patent Services.
• Sales of foldable phones in the Chinese market surged 144% in 2022 over the previous year, growing faster than overall phone sales. According to the latest report from market research organization IDC, Huawei ranked first in China’s foldable phone market, with a share of 47.4%; Samsung ranked second with a market share of 16.5%.

Major Chinese consumer electronics brands have a strong presence at this year’s Mobile World Congress 2023 (MWC 2023) in Barcelona, as China reopens after three years of Covid-19 related restrictions.

The industry event brings together the world’s leading telecom operators and equipment manufacturers to showcase their latest products and technologies, including 6G, WiFi-7, satellite communication, and brand new consumer electronics devices. This year’s conference is expected to attract 80,000 attendees over the course of its four days, with more than 2,000 exhibitors from around the world, according to MWC.

Chinese gadget makers Honor, Huawei, Xiaomi, Oppo, and ZTE all showcased new products at the conference. Here’s a rundown of what they had to offer. 

1. HONOR

Honor launched its Magic Vs Foldable to the global market at the event. The foldable phone was first released in China three months ago. The Magic Vs Foldable is powered by a Snapdragon 8+ Gen 1 chip, Android 13 Magic UI 7.1 system, and a 5000mAh battery and comes with 66W fast charging and dual symmetrical speakers. It supports a 1920Hz PWM high-frequency eye protection mode and has a 6.45-inch 120Hz external screen with up to 1200nit brightness, as well as a 7.9-inch 90Hz 800nit interior screen with 2K HD resolution. Its cameras include a rear 54-megapixel main camera, a 50-megapixel ultra-wide angle lens, and 3x optical zoom lens. The phone was launched with a price tag of 1,599 euros (RMB 11,753) for 12GB+512GB storage, and comes in two color options: cyan and black.

2. HUAWEI

Huawei released the industry’s first commercial 50G PON (Passive Optical Network) at this year’s MWC, which can process signals without power supply. The nodes within the PON are composed of delicate and compact optical fiber components. The Chinese telecom giant says that the 50G PON can meet the increasing bandwidth requirements of offices, campuses, industrial sites, enterprises, and households.

Huawei also released their FTTR F30 (Fiber to the Room), which it claims is the industry’s first all-optical home networking product based on C-WAN architecture. C-WAN stands for Classified Wide Area Network, which features five major updates:

• A design upgrade with four colors and three installation modes.
• A speed improvement with hardware acceleration and 2000Mbps for the whole house.
• A coverage upgrade with multi-beam smart antenna coverage increased by about 30%.
• Improved roaming with unique SRCN (Seamless Roaming Coordinated Network) for senseless roaming.
• A concurrency upgrade with multi-terminal collaboration technology, which allows a maximum of 128 devices to be connected simultaneously.
  

3. Xiaomi

Xiaomi displayed its new wireless AR glasses at the conference. The glasses feature two Micro-OLED screens supporting 1,200 nits of brightness and full HD FHD visuals. Three forward-facing cameras map the surroundings directly in front of the wearer. The AR glasses are lightweight, made of carbon fiber and magnesium alloy, and run on Xiaomi’s self-developed silicon-oxygen anode battery, which weighs less than conventional lithium-ion. 

The glasses are powered by a Qualcomm Snapdragon XR2 Gen 1 chip and have no storage, so they must be connected to a device. The advertised latency is only 50ms. According to testers from the Chinese gadget review site ITHome, after 20 minutes of video watching, the latency is indeed very low with barely any lag and no degradation in picture quality.

In addition, Xiaomi also unveiled the BE7000, a high-performance WiFi 7 router. Equipped with Qualcomm Networking Pro 820, the quad-core A73 1.5GHz processor delivers 28,800 DMIPS of computing power, outperforming most flagship WiFi 6 routers on the market. It also comes with four 2.5G ports and one USB 3.0.

4. Oppo

Oppo brought its Find N2 series to MWC, as well as the self-developed Mariana MariSilicon Y chip, smart glasses Air Glass 2, home health detector OHealth H1, and its 45W liquid cooled radiator.

In addition, Oppo also showcased its first router product, the Wi-Fi 6 Router AX5400. The router uses Qualcomm’s 216 immersive home networking platform to support Wi-Fi 6 AX5400 standard and dual bands of 2.4GHz and 5GHz. Its high-gain antenna, combined with Oppo’s own anti-jamming algorithm and network directional acceleration technology, can boost Wi-Fi signal coverage and make connections more stable, the company says.

The Find N2 Flip series overseas version was initially launched in London on Feb. 28, at a starting price of 899 euros. But Oppo ensured it got plenty of attention at MWC as well by bringing in retired footballers Michael Owen and Luis Garcia to announce that the Oppo Find N2 Flip is now the official UEFA Champions League phone.

5. ZTE

ZTE launched the nubia Pad 3D tablet, in collaboration with Leia Inc., a company that develops naked-eye 3D technology. The Chinese firm says the tablet can support rich 3D application scenarios such as AI face tracking, real-time perspective matching, and real-time AI content processing, transforming 2D into 3D, thanks to Leia’s original 3D light field display technology and powerful AI computing engine.

It has a large 12.4-inch 2.5K screen and four panoramic speakers from Dolby. With a rich 3D content ecosystem, ZTE says that the nubia Pad 3D allows users to enjoy the industry’s first 3D enhanced video chat, private 3D cinema, and immersive 3D games. The tablet is powered by a Snapdragon 888 chip and a 9070mAh battery, and features a 33W quick-charge combination.

Skirmishes have surrounded China’s speedy uptake of electric vehicles in the past year, with industry giant BYD reigning supreme but an increasingly large crowd of challengers looking to muscle in on the action. Once-promising startup Xpeng Motors and major automaker Great Wall Motor have been among those to falter in 2022 – and the war is far from over.

Industry observers link BYD’s success to China’s national shift towards electric vehicles, the company’s highly-integrated supply chain across key components, and a rising consumer preference for high-quality, cost-competitive automobiles as recession looms. 

Xpeng’s recent setbacks, however, reflect structural weaknesses at the company, including limited competitiveness and low operational efficiency in a crowded marketplace. Now, the risk of falling behind the competition has become real for the Guangzhou-based company.

Even Tesla faces an eroding market share in a highly competitive field, thanks to an onslaught of new models from various domestic rivals. Meanwhile, foreign auto giants from Volkswagen to Ford have long lagged behind Chinese counterparts in transitioning to green energy.

Here, we look at the annual results of China’s EV leaders and attempt to explain the dynamics behind some of the biggest winners and losers of the past year.

Winners and losers 

Despite being a bright spot in a slowing auto market, China’s two-year run of huge growth in the EV sector hit unexpectedly fierce competition as it shifted into a lower gear in the second half of 2022.

BYD was the biggest winner of the year, with annual sales of 1.86 million electric cars. The company’s output was more than triple 2021’s figure of around 600,000 units, comfortably exceeding its goal of 1.5 million units.

Tesla was left a distant second. The company’s sales started to slow last year as concern grew about an underlying mismatch between supply and demand. In 2022, the US automaker delivered 439,770 China-made vehicles to local customers, a 37% increase from a year ago and significantly lower than its 50% growth target for overall sales volume.

Besides BYD and Tesla, multiple Chinese EV makers including Nio and Xpeng embarked on 2022 with optimism and ambitious sales targets. However, only a handful managed to hit their goals. Aion (the EV arm of state-owned automaker GAC) and Hozon kept their word by selling around 271,000 and 152,000 EVs respectively last year. Geely’s premium EV brand Zeekr also achieved its goal by delivering just over 71,000 vehicles.

China’s US-listed EV makers mostly underperformed. Nio played tough to secure around 80% of its 150,000-vehicle delivery goal, while Xpeng delivered just over 120,000 units of its 250,000 unit target.

Why BYD dominated the market

In December, when most automakers struggled to protect their market shares by offering generous discounts as the Chinese government phased out EV subsidies, BYD went the opposite way by announcing a price rise of up to RMB 6,000 ($870) across its lineup. The move proved BYD’s role as “price maker” in the mass market, analysts at Jefferies wrote in a Dec. 1 report.

Analysts attributed BYD’s dominance partly to its success in ramping up manufacturing capacity and building a secure, integrated supply chain from batteries to chips. In 2022, when the company tripled its annual car capacity to around 3 million units at its eight manufacturing locations, according to public information gathered by investors, it also more than doubled its battery capacity to 285 gigawatt-hours (GWh), according to estimates by Founder Securities. A company spokesperson declined to comment on the capacity figures.

Also, the automaker has adopted a dual strategy of betting on both all-electrics and plug-in hybrid EVs (PHEVs) as range anxiety continues to be a top concern among local buyers. BYD offers nearly 70  models in major configurations and price categories. This helps the company stand out in a crowded market where many competitors pick a type and limit buyers’ options.

Why Xpeng and Great Wall Motor are losing ground

As China’s EV sales reported nearly 100% annual growth in 2022, Xpeng Motors and Great Wall Motor are among the most surprising names for whom sales growth dipped well below the industry average. The two companies sold 120,757 and 131,834 EV units last year, posting a flat increase of 23% and a 4% decline from a year earlier, respectively.

Multiple factors have put pressure on the two companies, including weaker consumer sentiment and interest rate hikes. 

The sales slump at Great Wall Motor indicates a major setback in the company’s slow shift to EVs. In 2022, monthly sales of the company’s Haval H6, once China’s top-selling gas-powered crossover, fell 75% to around 20,000 units from historic highs, as it appeared to be outpaced by popular EV models produced by Tesla (Model Y) and BYD (Song Plus). 

Ora, the company’s dedicated EV sub-brand, saw sales decline by 23% year-on-year to 103,996 units. Nevertheless, Great Wall Motor’s management has big plans for 2023 — promising to launch more than 10 EV models, including five new PHEVs under the Haval brand and two new models under the Ora marque.

Xpeng is facing a more complicated external environment, as well as the threat of increased pressure from rivals, said David Zhang, a school dean at Jiangxi New Energy Technology Institute. Not only are sales of big name rivals such as BYD and GAC’s Aion gaining momentum, but younger makers such as Hozon and Leapmotor are increasingly catching up. That’s the broader context behind Xpeng currently restructuring its business, according to Zhang.

Meanwhile, Xpeng is exposed to a potential demand mismatch risk in the short-term, as consumer confidence in vehicle intelligence technologies lags behind ambitious plans to bring self-driving cars to the market, analysts from Zheshang Securities told local media outlet Jiemian.

The Alibaba-backed EV maker has pledged to put more effort into overall car-making after reporting three consecutive months of dropping sales as of October and losses of RMB 6.78 billion ($1 million) for the first three quarters of 2022. It is also dealing with an aging product portfolio and implementing cost control measures to boost efficiency and drive sales, with chief executive He Xiaopeng promising to refocus on the core company after spending some time and energy on emerging businesses such as flying cars.

“We have high expectations for 2023. It’s a game of both competence and persistence. We have winning cards to play the game, and the evolution is making good progress,” a company spokeswoman said when contacted by TechNode.

Trend 1: Bring everything in-house

In-house manufacturing of key components has become one of the biggest trends in China’s EV industry over the past year, as many automakers look for ways to reduce supply chain vulnerability amid persistent chip shortages and the surging cost of battery materials. Among them, BYD is widely seen as a role model for this vertical integration strategy: the automaker builds its own supply chain and performs most of the activities required to bring its vehicles to market.

Already the world’s second-biggest battery maker and a major domestic supplier of power semiconductors for automobiles, BYD is now looking to expand production capacity significantly and accelerate the development of new products. Founder Securities expects BYD’s capacity to increase to 445 GWh-worth of batteries to close the gap with dominant player CATL by the end of 2023. In November, the company abandoned an initial public offering plan for its semiconductor unit as it decided to focus instead on expanding the capacity of a local plant by 80% to reach 360,000 wafers in 2023.

Other major industry players, from state-owned GAC to US-listed Nio, have also been racing to develop battery and semiconductor technologies in-house to ensure a secure supply of the key components. Here are some recent moves and potential developments for the companies heading into 2023:

• On Nov. 18, Svolt, an EV battery startup backed by Chinese automaker Great Wall Motor, filed initial paperwork for a public share sale on Shanghai’s Nasdaq-style Star market. The company is looking to raise RMB 15 billion to build three manufacturing plants with a combined annual capacity of around 106 GWh.
• On Dec. 29, GAC began building an RMB 2.2 billion drivetrain plant in Panyu, a city in the southern province of Guangdong, with mass production to kick off at the beginning of 2024. Initial capacity will enable it to assemble drivetrain systems for 400,000 battery EVs and 100,000 plug-in hybrid vehicles annually by 2025.
• On Dec. 21, Xpeng confirmed that it has set up an RMB 5 billion subsidiary to produce battery packs on its own but will still source battery cells from partners. On Oct. 25, peer Nio made a similar move by forming an RMB 2 billion subsidiary for battery manufacturing, in addition to a $32.8-million research facility for battery development.
• On Oct. 10, Chinese media outlet LatePost reported that both Nio and Xpeng had formed hundred-strong teams to work on chips for autonomous driving, while Li Auto had been hiring chip designers for more fundamental semiconductor components.

Trend 2: Short-term bumps

Analysts have warned about the prospects of a bumpier year for EV makers in 2023, and sure enough, the industry is already seeing some sharp movements. On Jan. 6, Tesla made a big splash by cutting the prices of its China-made vehicles by between 6% and 13.5%, a move that Sun Shaojun, a popular Chinese car blogger, described as kicking off an industry-wide battle for survival in the year ahead.

Sun added that many rivals would probably have to follow suit in the face of such a big promotion by an industry leader. Meanwhile, analysts at Bernstein expect competition to heat up with as many as 126 new battery EV models and 55 new plug-in hybrid models coming to market in 2023, a 40-50% increase on last year.

In anticipation of a post-Covid recession and in light of EV subsidies being scrapped, sales are expected to slow this year. Credit Suisse’s sales forecast of 9.4 million EV sales in China is one of the more bullish on Wall Street, while Bernstein more cautiously holds that 8 million units will be sold in the country this year.

An ongoing growth story 

And yet, long-term growth prospects remain buoyant, as demand shifts from policy-led to consumer-driven, Bernstein analysts wrote in a Jan. 5 report. UBS shared the sentiment, expecting the new energy vehicle (NEV) penetration rate, mainly for all-electrics and PHEVs, to grow by 10% this year to reach 37% of all new car sales.

2022 proved to be a big year for Chinese EVs. The central government achieved its goal of EV adoption approaching 25% of total car sales three years ahead of schedule, as industry sales nearly doubled to 6.8 million units. Still, pressure on margins is likely to persist in the near term for smaller companies, which have already been exposed to high battery material costs.

Looking ahead, China has cemented its growth momentum in the global EV race, but industry players should expect short-term sacrifices to hit their profits as they glimpse a bigger and brighter future.

China’s electric vehicle price war has edged up a notch, with Xpeng Motors and Huawei-backed Aito now following Tesla in slashing prices on their lineups, responding to intensifying competition as Tesla’s China-made vehicles gain market share.

Why it matters: These latest price cuts could force more EV makers to follow suit, hitting profit margins that have already been squeezed by the recent sharp rise of battery raw material costs.

• The next two months may see more price drop campaigns thanks to new product offerings and a decline in lithium carbonate prices, said Cui Dongshu, secretary general of the China Passenger Car Association (CPCA), on Jan. 10.

Details: According to a “new pricing scheme for the Chinese New Year” released by Xpeng on Tuesday, the starting price of its P7 sedan dropped RMB 30,000 or around 15% to RMB 209,900 from RMB 239,900 ($30,942 to $35,365). Xpeng’s newly-launched G9 crossovers were excluded from the cuts.

• The EV maker also cut the price of the top-spec long-range model of its G3i crossover by RMB 25,000 to RMB 176,900, while the starting price of its mainstream P5 sedan dropped by 12.8% to RMB 156,900.
• The actual transaction prices of the G3i and P5 remain largely unchanged as the respective cuts on the sticker prices are in line with an RMB 20,000 discount that the company offered from October to December, Morgan Stanley told investors in a report.
• However, the price reduction for the P7 comes as sales costs increase by between RMB 10,000 and RMB 16,000. Xpeng’s gross margin in the current quarter will “likely hit a trough” due to the price adjustments, wrote the analysts.
• On Jan. 13, Aito, a Chinese EV brand backed by technology giant Huawei, also cut prices for its M7 and M5 sports utility vehicles by nearly 10%, bringing the two vehicles’ prices to RMB 289,800 and RMB 259,800.
• The price cuts will likely squeeze vehicle margins per unit. Still, selling at volume may help Aito increase gross margins and grow its business, according to an investor relations representative at Seres, which makes Aito-branded vehicles with Huawei.

Context: Despite a backlash from many existing car owners, Tesla has achieved instant results on sales and regained growth momentum after it drastically cut prices on its China-made vehicles earlier this month.

• Order volumes at some of Tesla’s showrooms in lower-tier Chinese cities have surged by as much as 500% from a month earlier, according to a Monday report by Chinese media outlet Yicai. The Beijing News also reported that the company saw an increase of 300,000 new orders in three days following the cuts.
• Some competitors have so far refused to join the fray. On Monday, an executive at Zeekr said that Geely’s premium EV brand would stick to its current price for its 001 crossovers. Meanwhile, BYD and GAC’s EV unit Aion raised prices across their vehicle lineups at the beginning of this year, citing Beijing’s phasing out of EV incentives among other reasons.
• Tesla handed over nearly 440,000 China-made vehicles to local customers in 2022, representing a below average increase of 37% from a year ago. The company’s share in the Chinese EV market fell by 8.3% year-on-year to 6.6% in December, according to figures from the CPCA.

READ MORE: Chinese EV makers rush to boost year-end sales as subsidies expire

BYD became the world’s best-selling electric vehicle brand in 2022, managing to sell a record 1.8 million units, more than triple its numbers from a year earlier. Other major automakers also reported improvement in December, according to the latest sales figures. 

Why it matters: The figures show that BYD has had an iron grip on the market in the last year while smaller EV makers faced ups and downs. China’s EV sales in 2022 are set to finish lower than expected as the industry enters a slower period after authorities phased out EV purchase subsidies at the end of 2022.

• China’s wholesale sales of electric passenger vehicles in December will increase by 17% from a month earlier to around 700,000 units, according to estimates by the China Passenger Car Association (CPCA).
• This means China’s new energy vehicle sales for last year could be below the previous estimate of 6.5 million units by CPCA. Passenger EV sales from January to November grew 100% year-on-year to 5.7 million units.

Details: BYD said on Monday that it delivered around 235,200 vehicles in December, an increase of 150.5% from the same period a year earlier. That figure also brings BYD’s total sales for 2022 to more than 1.86 million units, up 208.6% compared to 2021 figures.

• Aion, the electric vehicle unit of Chinese automaker GAC, maintained strong growth momentum with sales of 30,007 units last month. Overall sales surged 126% year-on-year to around 271,000 units in 2022. The company has set a target of selling 600,000 EVs in 2023, according to general manager Gu Huinan.  
• Hozon, a budget carmaker backed by CATL, was another bright spot with deliveries of 152,073 vehicles, an 118% jump compared with 2021. The company exported a significant number of 3,456 EVs and is looking to accelerate overseas expansion in regions such as Southeast Asia and the Middle East in 2023.
• Li Auto also ended the year with a record delivery count, handing over 21,333 crossovers to customers in December and becoming the first Chinese EV startup to reach the 20,000-unit milestone in monthly delivery. The total delivery count in 2022 for the brand was 133,246 vehicles, up 47.2% from a year ago.
• After a difficult third quarter, Xpeng Motors’ deliveries bounced back in December to a normalized level but still fell short of its US-listed peers Nio and Li Auto. The company delivered 11,292 units last month, including 4,020 units of the G9, its first premium crossover, which it launched in September. The final tally was 120,757 EVs, a mild 23% annual increase.
• Huawei-backed EV maker Aito also reported strong deliveries of 10,143 units in December, with total 2022 deliveries topping 75,000 units. 
• Monthly deliveries of Geely-backed EV brand Zeekr also surged 199% year-on-year to 11,337 units, bringing the maker’s total delivery count to 71,941 units.
• Nio delivered 15,815 cars last month, a monthly record high following November’s 14,178 units. Annual deliveries totaled 122,486 vehicles, representing a 34% growth from the previous year.
• Tesla’s deliveries increased 40% to 1.3 million EVs in 2022 from the prior year. The CPCA, which has tracked monthly sales for the company’s China operations since 2020, has not revealed its December sales figure for the Chinese market.

Context: Analysts expect industry sales to hit a plateau in 2023 after several years of strong growth as the Chinese government scraps subsidies for EV purchases.

• Citic Securities forecast sales of new energy vehicles, which mainly include battery-powered EVs and plug-in petrol-electric hybrids, to rise by 31% annually to 9 million units in China in 2023.

Chery, a Chinese automaker and a manufacturing partner of Jaguar’s Land Rover, will launch a new electric vehicle brand in March in the hope of getting a slice of the country’s growing premium EV segment, local media reported.

Why it matters: State-owned Chery is the latest automaker to partner with Huawei for an electric car manufacturing project, following similar moves by BAIC, Changan, and GAC. The new brand could give it the potential to challenge market leaders and help Huawei expand its in-car reach.

Details: The EV-only brand will target high-end car segments and will have a similar relationship to parent Chery as Zeekr has to Geely, sources told Chinese trade media Yiche on Monday.

• Chery plans to build the first two models, including a sports sedan and a large-size crossover, based on its new EV platform E0X and use Huawei’s in-car software and Qualcomm’s 8295 processor, the report said.
• Scheduled to debut in March and for delivery by the end of 2023, the new models will have a driving range of at least 700 kilometers (435 miles) on a single charge and be powered by CATL’s latest “Qilin” battery pack, financial media outlet Caixin reported, citing people familiar with the matter.
• The vehicles will also utilize artificial intelligence chips from Horizon Robotics, which allow users to access advanced driver assistance capabilities such as automatic lane switching on Chinese highways. Chery is an investor in Horizon, alongside Volkswagen and its partner SAIC.

Context: In September, Chery announced plans to make EVs in collaboration with Huawei under the latter’s Zhixuan (“smart choice”) model, by which the smartphone giant not only supplies key components but also allows partners to sell EVs through its retail sales channels. The companies said that one of the first two models would be priced above RMB 300,000 ($42,944).

• Last week, Huawei and Chery also revealed respective partnerships with battery giant CATL, making this a three-way partnership, similar to that between Huawei, CATL, and Changan for the launch of premium EV brand Avatr last November.
• Huawei and Seres, a smaller manufacturing partner, have made impressive sales gains with deliveries of more than 66,000 Aito-branded EVs in the nine months that ended in November. The two companies plan to launch their third production model late next year, Chinese media LatePost reported Tuesday.
• Known as a brand of budget cars, Chery reported sales of more than 221,000 new energy vehicles, mainly all-electrics and plug-in hybrids, for the first 11 months of this year. This represented a 148% year-on-year increase and accounted for around 20% of its total sales.

Chinese electric vehicle makers reported slower growth in deliveries in November and some even saw decreases as the market continues to be hit by a macroeconomic downturn. Nio and Li Auto posted record deliveries, but Xpeng continued its delivery slump. For other automakers, Aion, Hozon, and Huawei-backed Aito reported a monthly decline in vehicle deliveries in the month while Zeekr and Leapmotor started to show signs of slowing growth.  

Why it matters: The latest figures reflect a slowdown of China’s electric vehicle market as consumer confidence is hit by fears of a potential recession while an ongoing rebound of Covid cases in the country impacts vehicle production.

Sales recovery: 

• Li Auto and Nio saw significant sales recovery in November following a slump linked to growing competition and supply chain disruptions. The pair reported new record deliveries of 15,034 and 14,178 units, an increase of 50% and 41% from a month earlier, respectively.
• Nio expanded its product portfolio from three to six models on sale this year. It began deliveries of its first sedan model, ET7, in March, followed by the medium-size ES7 crossover in August and the long-awaited ET5 sedan a month later.
• Li Auto adopted a similar strategy, as delivery of its second large-size crossover the L9 started on Aug. 30 and that of the L8, a smaller version of the L9, came in October.

Xpeng’s slump:

• Xpeng Motors has continued to report lackluster sales, saying November deliveries totaled 5,811 vehicles, a 14% increase from a month earlier but still far from the historic high of 15,414 units in March.  
• The Alibaba-backed EV maker, once touted as a “Tesla killer” in China, is facing a number of challenges amid economic headwinds and fierce competition. Speaking to analysts on Thursday, chief executive He Xiaopeng said he expected its second crossover the G9 to drive deliveries back up to the threshold of 10,000 units in December.

Monthly declines: 

• Aion on Thursday reported (in Chinese) sales of 28,765 units in November, 4% lower than last month, though it still represented a 91% growth from the same period last year. Vehicle deliveries totaled 241,149 units from January to November for the EV unit of state-owned automaker GAC, which represents a near doubling of last year’s total of 123,660 units.
• Hozon, backed by Chinese battery giant CATL, followed a similar trajectory as deliveries increased 51% year-on-year but fell 16% from October to 15,072 vehicles last month. Year-to-date deliveries reached 144,278 units, with three entry-level crossovers and one mainstream sedan on sale from the brand.
• Aito’s sales in November represented the firm’s first monthly decline since delivery began in March, down 31.3% month-on-month to 8,260 vehicles. The Huawei-backed EV brand provides two plug-in hybrid crossovers, the M7 and M5, which compete against Li Auto’s L9, a successor model based on the latter’s popular Li One SUV.

Slowing growth: 

• Geely’s premium EV brand Zeekr said it delivered 11,011 vehicles in November, a nearly 9% month-on-month rise, compared with a 22.3% increase a month earlier. And yet year-to-date deliveries reached 66,611 units as of last month, inching closer to its annual goal of 70,000 vehicles.
• Meanwhile, Hong Kong-listed Leapmotor reported a 14.4% month-on-month sales rally of 8,047 vehicles. However, vehicle delivery fell for a third straight month as of October after the Zhejiang-based automaker sold a milestone 12,525 cars in August.
• Nevertheless, Zeekr and Leapmotor have emerged as strong competitors in the Chinese EV market. 

Chinese telecom giant Huawei introduced the Pocket S, a budget flip-style foldable phone, on Wednesday in China. The phone has a lower price range compared to other foldable phones, priced between RMB 5,988 and RMB 7,488 ($819 to $1,025).

Why it matters: Huawei has so far dominated the foldable phone market in China. The new Pocket S further lowers the entry price for a foldable phone, making it a strong rival to the Samsung Z Flip series.

• Huawei is also looking to appeal to a broader audience with the product, and some phone cases have been specifically designed to attract female users, whose tight-fit attire may not have enough pocket space to hold a traditional smartphone.
• Liu added that the formerly-released Huawei Pocket P50 is the model with the best sales of 510,000 units in the first three quarters in China. The release of Pocket S further lower the entrance of foldable phones, and he expected a larger market share from flip-style foldable phones.

Details: The Huawei Pocket S is a cheaper version of the Pocket P50, sharing a similar core experience but compromising on key specs like the processor and cameras. 

• The phone is equipped with a 6.9-inch OLED display, and its body is sized 87.3 x 75.5 x 15.2 mm when folded (half of a usual smartphone) and 170 x 75.5 x 7.2 mm when unfolded. The main display is of a 21:9 ratio, with a 120 Hz refresh rate.
• It also has a mini display on the cover next to the cameras to display essential information, which is 1.04 inches. Its resolution is 340 x 340 pixels with a 328 PPI.
• Huawei adopted a new hinge design for the phone, which is firmer and more durable, claiming a folding count of over 400,000.
• It has a 4,000-mAh battery and supports 40 W fast charging. Huawei claims that the phone can be charged to 52% in 20 minutes.
• Unlike the Pocket P50, the model has a dual-camera design and comes with a new RYYB (Red, Yellow, Yellow, Blue) sensor, like the Mate 50 series. With the new sensor, the camera can take in 40% more light, according to Huawei.
• The processor is a major compromise as the Pocket S is equipped with a Qualcomm 778G 4G mid-end chipset. Huawei applied a new cooling tech made of flexible graphene material to get more performance out of the processor.
• The Pocket S comes with a fingerprint sensor on the power button for biometric authentication. 
• The phone is available in four colors and three storage volume options: 128 GB, 256 GB, and 512 GB. All versions have 8 GB RAM. The former two storage options will be available from Nov. 10, and the 512 GB version will launch in December. 

Context: Foldable phone shipments in China saw a sharp yearly increase of 246% in the third quarter of 2022 to 1 million units. Huawei is the top foldable phone vendor in China, and shipped 44.9% (in Chinese) of the units in the country in the third quarter of 2022, according to IDC.

• For the first half of this year, Huawei accounted for 16% of the foldable phone market globally. Samsung led the global market with a 62% share, according to Counterpoint Research.
• Compared to those with larger displays, flip-style foldable phones have a smaller volume and weight and it targets users who prefer smaller phones or want an affordable foldable phone, Louis Liu, an analyst from CINNO Research told TechNode.

Aion and Zeekr, the electric vehicle subsidiaries of Chinese automakers GAC and Geely respectively, each broke their monthly records for vehicle deliveries in October, while US-listed EV trio Nio, Li Auto, and Xpeng Motors lagged behind their peers.

Why it matters: Although Tesla and BYD have long been the undisputed leaders in the Chinese EV market, GAC and Geely are among the traditional automakers leading the chase. The October delivery results also reflect the strong momentum of Huawei-backed EV maker Seres and the mounting troubles faced by Xpeng.

GAC: The state-owned automaker said on Tuesday that it delivered 30,063 Aion-branded vehicles in October, an increase of 149% from the same month last year. That number brings Aion’s total delivery numbers this year to 212,384 vehicles.

• Toyota’s Chinese manufacturing partner is ramping up efforts to meet an annual delivery target of 250,000 Aion-branded EVs this year, with its second auto manufacturing plant for Aion beginning operations in Guangzhou in early October.

Geely: Zeekr made deliveries of 10,119 EVs in October, a record high for Geely’s premium EV brand. Year-to-date sales totaled almost 50,000 as of last month, with the brand close to reaching its goal of delivering 70,000 cars this year.

• Geely is looking to spin off Zeekr for an initial public offering, through which Volvo’s parent company expects to fund its plans to introduce six Zeekr-branded models within five years.

Seres: Huawei‘s manufacturing partner delivered 12,018 Aito-branded EVs last month, a 461% jump from a year earlier. October was also the third straight month that it has delivered over 10,000 units in a single month since the delivery of its first production car began in March.

Xpeng: Deliveries of the eight-year-old EV maker more than halved year-on-year to just 5,101 vehicles last month. Vehicle deliveries totaled 103,654 units from January to October, far from the company’s unofficial 2022 guidance of 250,000 vehicles set early this year.

• A total of 623 G9 crossovers were handed over to consumers last month after delivery began on Oct. 27. The company expects monthly deliveries of its second sports utility vehicle to surpass the threshold of 10,000 units next year after production ramp-up.
• The company’s second sedan model, the P5, which the company expected to be a hit in the mainstream segment with a starting price of RMB 157,900 ($21,707), has underperformed with deliveries of around 33,700 units as of October this year.

Nio and Li Auto: The two other EV upstarts each reported October deliveries of more than 10,000 units, slightly lower than the previous month. Yet both have enjoyed a solid performance despite ongoing supply chain issues amid the post-pandemic rebound.

• Nio’s premium sedan ET7 is the company’s most in-demand model on sale, recording deliveries of 3,050 units. At the same time, the company only handed over 1,030 units of the ET5, its second sedan model, as production is still ramping up.
• The automaker was also forced to cut production at its facilities in the eastern city of Hefei in mid-October due to Covid restrictions, Chinese media outlet 36Kr reported Tuesday, citing people familiar with the matter.

Hozon and Leapmotor: With three entry-level cars on sale, Zhejiang-based Hozon managed to exceed deliveries of 18,016 units in October, representing a 122% year-on-year rise, while Leapmotor deliveries dropped by more than a third to 7,026 units.

BYD and Chinese state-owned carmaker GAC reported strong growth in revenue and profits in the third quarter, further expanding their lead among Chinese peers. Other Chinese automakers — state-owned SAIC, and Huawei partners Seres and Changan — have reported mixed results with slowing growth or stagnated earnings. Rising material costs and intense competition are among the factors contributing to the companies’ woes.

Why it matters: BYD reported significantly stronger profitability than its peers with a gross margin of 22.75% in the third quarter, followed by Changan’s 17.4%, SAIC’s 9.6%, and GAC’s 4.6%, while Huawei-backed Seres is still losing money.

• BYD and GAC are showing their advantages as their EV models consistently top sales chart. Other automakers’ disappointing third-quarter results came against the backdrop of soaring lithium prices, an ongoing price war between major automakers, and the looming phase-out of EV purchase subsidies by the government by year-end. Experts anticipate that many automakers will reduce prices in exchange for market share, which could further impact their profitability in the short term.
• The spot prices of lithium carbonate in China exceeded the RMB 500,000 ($68,776) threshold on Sept. 13, a nearly 80% increase from the beginning of this year, according to figures from the metal research institute Shanghai Metals Market.

BYD: The Shenzhen-based manufacturer reached an average of around RMB 10,000 profit per unit sold from July to September, a significant increase from RMB 6,400 in the previous quarter, according to estimates from Jefferies Financial Group. Net profits reached RMB 5.7 billion, a gain of 350% from the same quarter in 2021.

• Analysts listed both an increase in average selling price and better economy of scale as contributing factors. Yet, BYD’s profitability is still much weaker than rival Tesla’s, which made $3.3 billion in net income in the same quarter.
• Shares of BYD jumped 6% in Hong Kong on Monday after the EV giant on Friday posted sales of RMB 117 billion ($16.1 billion) for the third quarter, up 116% from the same period in the previous year. 

GAC: State-owned GAC also reported strong third-quarter results, with revenue up 51.6% year-on-year to RMB 31.5 billion and profit growth of 144%. Toyota’s Chinese partner is aiming for a delivery target of 250,000 Aion-branded EVs this year and has sold around 182,000 units as of September.  

SAIC: On the opposite end of the spectrum was SAIC, which has seen its stock price fall 30% since 2022. Sales from China’s biggest automaker grew 12.9% year-on-year to RMB 205.2 billion in the third quarter, but profit fell 18.4% annually to RMB 5.74 billion.

• The results also revealed that SAIC’s manufacturing partner Volkswagen is under big pressure as it struggles to catch up with pure-player EV makers. The German automaker saw the overall market share of its venture SAIC-VW slide to 5.8% from 8.2% two years ago.

Huawei partners: Results from Huawei’s EV partners were also less impressive. Seres saw losses widen 57.3% from a year earlier in the third quarter to RMB 947 million, partly due to rising costs of raw materials, having recorded a sharp growth in sales of its Aito-branded EVs.

• Changan’s revenue rose 28.4% but profits fell 17.5% in the quarter. Avatr, the automaker’s EV subsidiary, will begin selling vehicles via Huawei’s retail stores as early as December, China Securities Journal reported Friday, citing a company spokesperson.

Context: Early this year, more than a dozen Chinese automakers raised EV prices to offset the rising cost of electronic components and battery materials used in vehicles. However, Tesla went the other way by slashing as much as 9% of its car prices last week, with Huawei-backed Seres quickly following suit. Analysts from China Merchants Bank International expected general car sales to slow into 2023 in China, while EV makers are also facing growing competition given a challenging macro environment, according to an Oct. 24 report by Reuters.

Aito, an electric vehicle brand backed by Huawei, has quietly cut the prices of its electric crossovers by RMB 8,000 (around $1,100), in what appears to be an immediate reaction by a Chinese firm to Tesla’s major price cuts aimed at boosting demand.

Why it matters: The move is the latest sign that a new price war has broken out in the world’s biggest auto market. Tesla on Monday offered a significant price reduction on its popular EVs, which analysts predict could force other automakers to follow suit.

• There could be further headwinds coming for young Chinese EV makers, including Nio, Xpeng Motors, and Li Auto, which have already faced slowing growth amid rising competition, Chinese media outlet Caixin reported on Monday, citing analysts.
• Sales of high-end models from BYD and traditional auto majors are also likely to be impacted. This would further erode profit margins for cash-burning carmakers, which have been struggling with the soaring cost of critical components, among other supply chain issues.

Details: The price cut, which Aito has not officially announced, affects its two all-electric sports utility vehicles, the M7 and the M5, Chinese media outlet The Paper reported on Tuesday. Customers who have already paid a pre-order deposit have been told to pay the remainder of the requested sum with a reduction of RMB 8,000, the report said.

• Aito currently has two models on sale: the M7 and M5 plug-in hybrid, with starting prices of RMB 319,800 and 259,800 respectively, as well as the all-electric version of the M5, priced from RMB 288,600. These amounts put them in the same price range as the Tesla Model 3 and Model Y in China.
• A spokesperson from Huawei did not respond when asked for comment by TechNode on Wednesday.

Context: Last December, Richard Yu, chief executive of Huawei’s consumer business group, announced the launch of the M5, Aito’s first car model equipped with Huawei’s HarmonyOS operating system and manufactured by Chinese automaker Seres.

• Since mid-2021, the Chinese telecommunications giant has been selling vehicles via its nationwide retail network for its partner, which reported monthly deliveries of more than 10,000 Aito-branded vehicles for the first time in August, just five months after delivery began in March.
• Nio, Xpeng, and Li Auto have reported slowing sales growth from July to September amid continuous supply chain turmoil while facing increased competition from bigger rivals, including Tesla and BYD.
• Xpeng’s market capitalization has tumbled more than 80% to $6.84 billion, while that of Nio had dropped below $18 billion as of Tuesday, compared with a historic high of more than $56 billion in November 2020.
• China’s sales of new energy vehicles, including all-electrics and plug-in hybrids, more than doubled annually to nearly 4.6 million units for the first nine months of this year. And yet, industry experts project sales to slow into 2023 when the competition will be more intense as Beijing phases out subsidies for EV purchases entirely.

READ MORE: Chinese EV makers may face a price war in 2022: UBS

Huawei’s cloud services arm announced plans to expand into two new international regions on Monday. Indonesia and Ireland will soon be covered by Huawei Cloud, the unit’s CEO Zhang Ping’an announced at the company’s Connect 2022 event in Bangkok.

Why it matters: Huawei Cloud has grown to become the second largest cloud service provider in China in the second quarter of 2022 by spending, according to Canalys. As Huawei has encountered setbacks with its attempted expansion into the US and some European countries, exploring alternative overseas markets could be a major opportunity for new growth for the Chinese telecoms giant.

Details: Huawei Cloud launched its “Go Cloud, Go Global” plan on Monday, which will focus on Everything as a Service (XaaS) and look to expand Huawei’s international footprint.

• Huawei Cloud will cover over 170 countries and regions by the end of this year, according to the firm.
• The company said it will build “one global network” and that its service will be accessible within 50 milliseconds globally.
• Huawei called for governments and enterprises to work more closely to build local digital ecosystems by strengthening the talent pool and supporting startups.
• The event also saw the company claim that they will support over 10,000 startups globally in the next three years by helping optimize costs and providing technical support, entrepreneurship training, and other business resources. More than 120 enterprises in the Asia Pacific region have already joined the Huawei Cloud Startup Program.

Context: The Global Infrastructure as a Service (IaaS) market is currently dominated by Amazon and Microsoft, with the two controlling 60% of the market by revenue in 2021, according to Gartner, a US consultancy. Huawei ranked fifth according to the same data, with a 4.6% market share and $4.19 billion in revenue in 2021.

• The second quarter of 2022 saw Huawei take 19% of China’s total market share by spending in the sector, second only to Alibaba Cloud’s 34%, according to Canalys.

Huawei on Tuesday revealed its first all-electric sports utility vehicle, the Aito M5, in collaboration with Chinese automaker Seres. The new model will compete with Tesla’s Model Y and others in the world’s biggest electric vehicle market.

Why it matters: Huawei, along with Seres, has quickly expanded its vehicle offering with two plug-in hybrid crossovers and a full-electric version, just six months after delivering the first Aito-branded vehicle in March. The telecom giant’s moves in the space could pose a serious threat to major EV makers.

Details: The Aito M5 all-electric will have an estimated driving range of 620 kilometers (385 miles), surpassing its rivals. For example, Tesla’s Model Y has a 545km driving range, EVs from German automakers BMW and Audi offer around 550km between charges.

• Richard Yu, chief executive of Huawei’s consumer business group, said that the Aito M5 performs “far better” than Tesla’s Model Y and offers a more luxurious in-car experience. Yu claimed the M5 is easier to control on rough roads and has a quieter cabin.
• Huawei said it received more than 30,000 pre-orders in just four hours after the all-electric M5 was announced, local media reported. In December, the tech giant saw 6,500 reservations in four days after releasing the first vehicle model under the Aito marque, the plug-in hybrid M5.
• The new model comes at a price range of between RMB 288,600 and RMB 319,800 ($41,395 to $45,870), at least RMB 38,800 higher than the starting price of its plug-in hybrid counterpart but lower than Tesla’s Model Y, which is priced from RMB 316,900.

Context: Huawei broke its delivery record with more than 10,000 EVs to customers in August, bringing the company’s total delivery numbers for this year to 39,433 vehicles as of August. Meanwhile, sales of rivals such as Li Auto and Xpeng Motors slid last month due to cannibalization by new models and increased competition.

• Huawei is also making a push into the mobility sector with the launch of the public beta version of its ride-hailing app “Petal Chuxing” on Tuesday. The aggregation platform currently provides Huawei smartphone users access to ride-hailing services such as T3 in 92 domestic cities.

READ MORE: Li Auto deliveries halve in August while Seres and Zeekr see growth

Chinese telecom giant Huawei introduced its new high-end Mate 50 phone series at a Tuesday product release event. The series features camera and glass upgrades and supports satellite texting.

Why it matters: Huawei’s new lineup offers several surprising features, with a notable breakthrough in cameras and satellite communication.

• Satellite features could be a new selling point for smartphones. Other firms are considering bringing satellite video calls to phones, including SpaceX, T-Mobile, and Chinese auto giant Geely. 

Details: Huawei’s new Mate 50 lineup is priced from RMB 3,999 to RMB 12,999 ($573.53 to $1,864.3), covering a wide market range. The Mate 50 standard, Pro, and the luxury RS model (with a Porsche-inspired design) are built with the newest high-end processor, Qualcomm Snapdragon 8+ Gen 1 4G. The lowest-priced Mate 50E model comes with a mid-end processor, Qualcomm Snapdragon 778G 4G. The standard, Pro, and E models have 8 GB RAM, while the RS model has 12 GB RAM. 

• All models in the Mate 50 series allow users to send texts over satellite, a feature powered by the Chinese satellite navigation system BeiDou. However, the option is only available in mainland China and does not support receiving texts.
• Devices are equipped with a 50 million pixels main camera with adjustable mechanical aperture, offering ten levels from F1.4 to F4. Additionally, thanks to the large aperture and new RYYB sensor (Red, Yellow, Yellow, Blue), the camera can take in 24% more light, according to Huawei. Sony and Samsung previously released phones with adjustable mechanical apertures, but both had a shorter range.
• Huawei also introduced new Kunlun Glass for the display, which offers 10 times more drop resistance than ordinary glass. In addition, the firm allows over ten older phone models to upgrade to the new glass, with prices starting at RMB 589.
• Chinese display makers BOE and Visionox supplied the Mate 50 series. A significant difference between models is evident in their display design. Standard and E models have a punch-hole display, while Pro and RS models have a wide-notch design for facial recognition sensors. 
• The E model does not support wireless charging, but all other models support 50 W wireless charging with the same 66 W charging speed.
• Mate 50, Pro, and RS will be available on September 21, and the Mate 50E will be available in October.

Context: Huawei is the fourth largest mobile vendor after Xiaomi, accounting for 6.03% of the global smartphone market as of August 2022, according to StatCounter, an analysis website started in 1999.

• Although Huawei’s market share has declined in recent years due to US sanctions, the company still accounted for 25% of all the owned and actively used smartphones in China in June 2022, according to QuestMobile, a Beijing-based data provider. However, when it comes to the number of newly activated devices, Huawei sits in fifth place with 7.75 million units in China during the first six months of this year, only half the number of Xiaomi phones activated in the same period.

Chinese electric vehicle upstarts Li Auto and Xpeng saw declines in August, while Huawei’s auto partner Seres and Geely’s Zeekr saw strong growth. Among them, Li Auto reported a record decline in August deliveries, more than 50%, as the electric vehicle maker’s new crossovers cannibalized sales of its existing model. Seres deliveries up28% in August while Geely’s EV brand Zeekr grew more than 42%. 

Why it matters: Li Auto’s shortfall took place when Seres and Zeekr saw growth, highlighting a more competitive EV landscape and a preference among Chinese consumers to gravitate towards the latest products, according to Tu Le, managing director of consultancy Sino Auto Insights.

Li Auto’s decline in August: Li Auto’s deliveries fell more than half in August to 4,571 crossover vehicles from a month earlier, extending a month-on-month decline of 21.3% in July.

• “Li Auto and Xpeng have recently had some high-profile vehicle launches that have likely led them to lose focus a bit,” said Le. “For Li Auto specifically, the new L9 has really cannibalized sales of the Li One, so it’s like they only have one product in the market again.” 
• This echoed a comment Shen Yanan, Li Auto’s president, made during an earnings call last month, in which he acknowledged that many customers “with enough budget” preferred the L9, the company’s second sports utility vehicle, over the cheaper Li One. The company began delivering the L9 on Aug. 30.
• Analysts also worry that the upcoming L8 crossover, confirmed by chief executive Li Xiang as a redesigned model of the Li One and scheduled for delivery in November, will have an even more significant cannibalization effect. 
• The eight-year-old EV maker on Monday confirmed to state media outlet Jiemian that it will phase out production of the Li One three years after its release in 2019, introducing a price reduction of RMB 20,000 ($2,882) for its first car model in some markets.
• The price cuts have angered some owners who accused the company of cheating them over the new car release and price changes. At least 1,000 Li One owners have filed complaints against the company on “Black Cat,” a complaint platform owned by Chinese tech firm Sina.

Rise of Seres and Geely: Meanwhile, Seres and Geely have both seen healthy growth in August. Xpeng Motors’ deliveries also declined by 16.9% to 9,578 vehicles in August from a month earlier, while Nio saw deliveries grow 6.2% month-on-month to 10,677 vehicles. There is a major concern about demand for Xpeng’s current models, as buyers might wait for the introduction of its G9 crossover, scheduled for delivery by year-end, as well as a retrofitted P7 sedan set to be released next year.

• Huawei’s manufacturing partner Seres saw a monthly record by delivering 10,045 vehicles in August, up from 7,807 vehicles in July, while Geely’s premium EV brand Zeekr also reported a record delivery number of 7,166 vehicles, representing a 42.7% month-on-month growth.
• Le expects that sales of both Seres and Zeekr will continue to grow. With Seres being able to sell via Huawei retail stores and Geely backing Zeekr, these “pseudo-startups” have support structures that most other “true” EV startups do not, which gives them quite an advantage, Le added.

Context: BYD maintained its leadership in the market by delivering 174,915 vehicles last month. Tesla is expected to have delivered more than 77,000 cars from its Shanghai facilities, according to estimates by the China Passenger Car Association on Sept. 1.  

• BYD and Tesla have much more production capacity than their counterparts, Le said, adding that the two companies’ leadership will continue amid “particularly tough” competition in the mainstream, small- to medium-sized SUV segments.

A hundred and forty-five Chinese companies made it to the 2022 Fortune Global 500 list released on Wednesday. The listed Chinese companies span a diverse set of industries, including energy, metals, technology, banking, and insurance. State Grid, China’s national energy provider, is the highest-ranked Chinese company on the list at number three, just behind Walmart and Amazon. 

The revenue of these Chinese companies accounts for 31% of the 500 companies’ total revenue, surpassing the total revenue from US companies on the list (which is 30% of the total) for the first time. 

However, Chinese companies’ profitability is still lacking compared to their counterparts. The average profit made by the Chinese companies on the list is $4.1 billion, much lower than the $6.2 billion average profit made by Fortune 500 companies. 

Below, TechNode summarizes what you need to know about the five top-ranking Chinese tech firms from the list: Hon Hai Precision, JD.com, Alibaba, Huawei, and Tencent.

1. Hon Hai Precision

Ranking: #20 

Founded in 1974, Hon Hai Precision is one of the world’s largest electronic assembling manufacturers and is best known for its Foxconn factories. Foxconn plays a vital part in Apple’s supply chains, assembling the brand’s Mac, iPhone, and iPad products. The company’s pivotal role was on show earlier this year, when China’s Covid lockdowns affected Foxconn factories and led to weeks of delays to some of Apple’s product shipments. 

The firm started investing in mainland China in 1988 and has more than 40 plants in the region. The company’s imports and exports account for 3.5% and 4.1% of China’s total import and export volume respectively, according to its official website.

Hon Hai’s position on the Fortune list rose two places from 2021. It brought in $214.61 billion in revenue last year and saw 18% year-on-year growth.

2. JD.com

Ranking: #46 

JD.com was founded in 1998 and has grown into an e-commerce giant focusing on consumer electronics in China. JD’s revenue hit $147.53 billion last year, but the firm’s losses continue to expand. In 2021, JD.com lost $551.8 million, up 107.7% from the previous year.

In recent years, the company has accelerated its expansion in logistics infrastructure and made an overseas push. JD Logistics bought delivery rival Deppon for $1.4 billion in early 2022 and logistics infrastructure provider China Logistics Property Holdings last month. In January, JD also teamed up with Shopify to help international merchants sell in China on its platform. 

The company is up by 13 places on this year’s Fortune list to the 46th.

3. Alibaba

Ranking: #55

A major Chinese e-commerce company, Alibaba has faced significant regulatory headwinds in China since late 2020. The group has also seen slower growth, partly thanks to more conservative consumer sentiment amid an economic downturn and China’s strict Covid control measures. 

The company’s revenue in 2021’s fiscal year grew 25.6% to $132.94 billion, but its net profit saw a 56.4% decrease to $9.7 billion in the same period. Analysts also expect the firm to record its first-ever decline in quarterly revenue in the coming month.  

Alibaba ranked 55th on Fortune’s list, eight places higher than last year. 

4. Huawei

Ranking: #96

Chinese telecom giant Huawei has fallen more than 50 places on Fortune’s international 500 list, dropping from 44th to 96th. The firm’s revenue also fell in 2021, with the figure down 23.6% on the previous year to $98.72 billion, but its profits grew 88.2% to $17.62 billion during the same period. 

The US’s ban on Huawei’s access to 5G chips has stopped the firm’s rapid growth in smartphone sales and pushed it into pursuing a variety of a new projects including cloud services, IoT, and smartphone operation systems. It has also found a growth point in enterprise business, offering cloud and hardware solutions to companies. This sector accounted for 16.1% of its total revenue last year.

5. Tencent

Ranking: #121

Tencent, owner of the ubiquitous messaging app WeChat and a global gaming giant, is also entering a slower growth period, thanks to China’s tighter regulations on gaming and monopolistic behavior.  

Nevertheless, in 2021 Tencent earned $86.84 billion in revenue, up 24.3% year-on-year. Its profits increased 50.5% from last year to $34.85 billion. 

Affected by China’s pause of gaming licenses and the country’s pandemic controls, Tencent has also been cutting down its workforce to control overheads. The firm turned to setting up studios like TiMi F1 for AAA-level title development and sought new profit growth in overseas markets in 2021. The firm’s overseas gaming business saw an impressive 31% yearly growth in 2021, according to its financial results.

Chinese telecom giant Huawei introduced the latest version of its HarmonyOS, a system for various smart devices, on Wednesday. The new HarmonyOS 3 system supports 12 different device types as the firm ambitiously looks to build its own closed-off ecosystem like Apple’s.

Why it matters: HarmonyOS, a Huawei-developed system originating from open-source projects, has amassed 300 million users since its launch in 2019. The third generation comes with more powerful features that connect different devices with one system while adding new local services such as a ride-hailing app.

Details: A key highlight of Huawei’s new operating system is a significant update of its cross-device integration feature called “Super Terminal.” HarmonyOS 3 is already open for public testing and will see a full rollout in September.

• First introduced in 2021, the Super Terminal feature is an integrated connection feature similar to a combination of Apple’s AirPlay, AirDrop, and HandsOff. It can connect a range of devices that run on HarmonyOS.
• Whereas HarmonyOS 2.0’s Super Terminal could only connect phones, tablets, PCs, audio devices, watches, and monitors, the new version supports 12 types of devices, with new additions including electric vehicles, smart glasses, printers, TVs, and E-ink readers.
• The feature allows connected devices can share information and send files to each other. For example, users can work on tablets and connect monitors and earbuds for a PC-like experience with a “pull,” a gesture to trigger a new connection with other devices. For drivers, the new HarmonyOS 3 adds support to connect phones and consoles in vehicles and the ability to use phone apps in cars.
• Huawei has also updated its transmission technology, reducing the latency to 1 millisecond between devices and claiming 20% better performance in highly interferential scenarios. The new update also claims to be 50% faster when establishing a new connection.
• The new Harmony operating system also incorporates more control of connected devices playing music or videos. For example, users can remotely control the playback and volume of TVs and stereos and can also share music with extra pairs of earbuds.

Context: In April, Huawei changed the name of its Consumer Business unit to Terminal Business, aiming to expand its focus from customer-facing business to enterprise and government businesses. The new HarmonyOS, along with new devices built with it, is part of this push to better serve customers with a variety of Huawei devices.

• Huawei’s consumer business saw a notable fall of 49.6% year-on-year to RMB 243.4 billion ($36 billion) in 2021, accounting for 38.2% of its total revenues. However, its enterprise business increased by 2.1% to RMB 102.4 billion, according to its financial report.

Chinese telecom giant Huawei is entering the ride-sharing market with the launch of a standalone car-hailing app “Petal Chuxing.” The company looks for ways to expand its car-related business and diversify revenue sources as sales of its smartphones slow.

Why it matters: Huawei’s foray into ride-hailing is a natural extension of the company’s ambition to become a key player in the automotive space as the autonomous ride-hailing service has the potential to make up a significant percentage of new car sales in the long run.

Details: Huawei launched a ride-sharing app called “Petal Chuxing,” based on its navigation app “Petal Maps,” which allows users to request rides from multiple ride-hailing providers, state media publication National Business Daily reported on Friday.

• Users can now access two domestic ride-hailing companies — Shenzhou Zhuanche, a Chinese car rental firm Car Inc subsidiary, and state-backed Shouqi. Huawei is testing the service in Beijing, Shenzhen, and the eastern city of Nanjing, the report said.
• At a press conference last week, Huawei’s head of consumer business Richard Yu said that the company has made Petal Maps more competitive than similar offerings by seamlessly linking users’ Huawei handsets to the HarmonyOS-powered vehicles.
• A Huawei spokesperson declined to comment further when contacted by TechNode, saying the company will share more information once it is available.

Context: Huawei first launched its proprietary mapping service for overseas users in October 2020, a year after US sanctions barred the company from including Google software and services on its devices. The service now has 28 million users from over 160 countries.

• The company also obtained a permit to draw up high-definition maps in its home country in mid-2019, a stepping stone to developing its self-driving car technology.
• Chinese tech companies Alibaba and Meituan also operate ride-sharing aggregation platforms, while automakers such as Geely, FAW, and Dongfeng, have built their own ride-hailing apps to take on long-time market leader Didi Chuxing.

READ MORE: Huawei begins selling EVs in stores, may offset sinking phone sales: CEO

Aito, a Chinese electric vehicle brand backed by Huawei, received more than 10,000 pre-orders for the M7 in just two hours, after it was unveiled on Monday. The new model is the brand’s second production vehicle featuring Huawei’s HarmonyOS operating system for cars.  

Why it matters: While reservations do not always translate into actual sales, the M7 has captured people’s attention, signaling that Huawei is turning into a serious rival to existing carmakers since entering the burgeoning EV space about one year ago.

• Experts believe that the new car will become a direct competitor to Li One, a popular large plug-in hybrid vehicle launched by Chinese EV maker Li Auto that has similar configurations and a similar price point. Aito has the potential to achieve a sales volume of up to 100,000 units for this year, state media outlet Shanghai Securities News reported Monday, citing analysts from China Securities.

Details: More than 10,000 people pre-ordered the Aito M7 sports utility vehicle in the first two hours after the car brand began accepting RMB 1,000 ($149) deposits on Monday afternoon, a company spokesman told TechNode on Tuesday.

• With a four-cylinder, 1.5-liter engine developed by Huawei and a 40.6 kWh battery pack supplied by CATL, the M7 will be able to go as far as 1,220 km (758 miles) on a full tank and 100% battery charge. It consumes 6.85 liters of fuel per 100 km, well below the 7.8 liters of Li Auto’s L9 SUV and the 10.8 liters of the BMW X7.
• The car uses Huawei’s HarmonyOS operating system, enabling drivers to access “all the mobile services“ from Huawei’s app store, Richard Yu, chief executive of Huawei’s consumer business group said during a press conference.
• The six-seater luxury SUV will have a starting price of RMB 319,800 ($47,737) and will be delivered to customers in August. More than 600 Huawei stores around China will provide test drives starting July 23, and that number will be increased to over 1,000 stores by year-end, according to Yu.

Context: Huawei and its manufacturing partner Sokon have seen a steady increase in sales of the M5, their first vehicle under the Aito brand, shipping 7,021 crossovers in June, a 40% increase from a month earlier.

• According to the latest figures, Aito has reached total delivery of 18,317 units in just four months since delivery began in March. Prior to this, the two companies had experienced an initial setback, delivering only around 8,000 Seres-branded electric crossovers in 2021 after unveiling in April, last year.
• Huawei’s core business growth is still under pressure from US sanctions with revenue dropping by 14% year-on-year to RMB 131 billion in the first three months of 2022, CNBC reported. The smartphone maker has also partnered with state-owned automakers like BAIC and Changan to make EVs.
• Domestic EV makers Nio and Li Auto released their new crossovers, the ES7 and the L9, last month, respectively, and scheduled delivery to begin in August. Another rival Xpeng Motors is set to launch its second SUV model G9 in the same month and will begin delivery in September, with pricing expected to start at more than RMB 300,000.

The CEO of Huawei spinoff Honor told state media on Thursday that the smartphone company plans to push overseas sales over the next five years. 

Why it matters: In November 2020, Huawei sold Honor, a budget smartphone sub-brand, to a majority Shenzhen state-owned company. In the 18 months since this sale, the firm has steadily gained market share in China and reached the top spot in domestic sales in March. Outside of China, the brand faces fierce competition from Chinese peers like Xiaomi, Vivo, and Oppo, as well as industry leaders like Apple and Samsung.

• In the latter half of 2021, Honor made it into the top-5 selling smartphone brands (in Chinese) in China, and most recently, the brand topped the sales chart in March (in Chinese), according to Chinese marketing research firm CINNO. 
• Honor has limited overseas reach, failing to crack the top 5 brands in terms of sales (which take 70% of the market share) in 2021. 

Details: Honor’s CEO Zhao Ming told China Securities Journal (in Chinese), a state-owned media outlet, on Thursday that the company will “fully launch sales to the overseas markets and expects no bottleneck period for the next five years.”

• Zhao added that more than half of the company’s 12,000 employees work in the company’s research and development unit. He also emphasized that Honor plans to invest more in research than in marketing.

Context: Founded in 2013, Honor was formerly owned by Chinese telecom giant Huawei as a sub-brand. 

• Huawei sold Honor to save the brand after it was sanctioned by the US and was cut off from using US technology, like Google services and critical chips, in 2019. Honor now has none of Huawei’s sanction burden and is able to use Google services and Qualcomm chips. 
• After the spinoff, the brand lost access to over 100,000 patents from Huawei.

On Thursday, Chinese telecommunications giant Huawei released Mate Xs 2, the second generation of its foldable Mate Xs series, priced from RMB 9,999 ($1505).

Why it matters: Huawei first adopted an outer folding design for its foldable phones in 2019, differing from mainstream models that folded inward, thereby solving the key issue of the prominent crease on the screens of foldable phones. With new hardware updates, Mate Xs 2 is vying to be a strong competitor in this vertical.

Details: Targeted at the high-end market, Huawei highlighted Mate Xs 2’s top-line tech specifications at the launch event on Thursday.

• According to the company, the new foldable phone continues with an outer fold option and has a 7.8-inch display, which downsizes to 6.5 inches when folded. 
• The maximum size of the model is slightly smaller than the 8-inch display on the recently released Vivo X Fold but is 18% lighter in weight.
• The OLED display on the Mate Xs 2 supports a 120 Hz refresh rate, with high rate dim illumination tech, that can reduce the harm to users’ eyes in dark environments.
• The phone is equipped with a Qualcomm Snapdragon 888 4G processor and has two combinations for memory storage: 8 GB RAM plus 256 GB or 512 GB storage and 12 GB RAM plus 512 GB storage. Huawei is having difficulties buying 5G chips due to US export restrictions. 
• The Mate Xs 2 features three cameras, which gives users the option of framing from ultra-wide to telephoto, with a maximum of 5,000 pixels image quality when shooting with the main camera. The phone also supports filming in 8K resolution.
• Although Huawei’s outer folding design solves the creasing issue, it makes the display more fragile, especially the phone’s folded spine. Huawei has yet to introduce extra protection that can solve this issue. 

Context: In 2021, Huawei shipped 900,000 units of foldable phones, accounting for 10% of the market, a distant second to Korean manufacturer Samsung, which accounts for 88% of the market.

• While many Chinese phone manufacturers have released their own foldable phones, such as Xiaomi, Oppo, and Vivo, Huawei remains predominant among Chinese brands.

Huawei has lowered its forecast for its car deliveries in partnership with various automakers this year due to worsening supply chain issues impacting the country’s auto industry, according to senior executives.

Details: Speaking to analysts on Tuesday, Huawei’s rotating chairman Hu Houkun confirmed that the company has scaled back its expectations for car sales and is now seeking support and understanding from the auto industry as it “is susceptible to making mistakes” as a newcomer (our translation).

• Hu also underscored plans to launch new vehicle models with several partners this year, without revealing any further details, and reiterated Huawei’s position to partner with automakers on vehicle technology rather than making its own cars, Chinese media outlet Caixin reported on Wednesday.
• Hu made the comment a week after Huawei’s chief of consumer and auto business Richard Yu admitted for the first time that ongoing supply chain disruptions, such as microchip shortages and soaring prices, have impacted the firm’s sales targets for its auto business.
• Speaking to a Chinese auto journalist on April 18, Yu talked about the Aito M5, the first premium electric SUV co-launched by Huawei and its partner Sokon in December, saying that sales of between 100,000 and 200,000 vehicles for the year would likely be a best case scenario.
• That is a significant cut from its original goal of selling 300,000 Aito-branded vehicles annually, which was announced during a company meeting early this year, Caixin reported (in Chinese).

Context: Sales of the Aito M5 appear to have run into a brick wall, with just over 5,000 vehicles sold during the first quarter of 2022. The luxury crossover, powered by Huawei’s HarmonyOS operating system, was launched at a price of RMB 250,000 ($39,053), but the base model cost will be increased by RMB 10,000 starting from May 5. The companies behind the model blamed soaring raw material costs for the price hike.

• Meanwhile, Sokon has ended production of the Seres SF5, its first EV model jointly developed with Huawei, after months of lackluster sales. The Seres SF5 sold around 8,000 units in 2021, while EV startups Nio, Xpeng Motors, and Li Auto each recorded deliveries of nearly 100,000 cars.
• The Chinese telecommunication giant also has plans to launch new EV models with state-owned automakers Changan and GAC this year, although another partner BAIC has not yet delivered new Arcfox-branded vehicle editions beyond the initial standard model, which were set to be equipped with Huawei’s advanced driver assistance system and released last April.

Shanghai and Changchun, two of China’s major auto hubs, have been swamped by the highly contagious omicron variant of the coronavirus. The outbreaks, coupled with China’s strict epidemic control measures, have resulted in a huge blow to April auto sales. Now auto executives and analysts say that the impact could cripple the whole industry if the lockdowns remain unchanged.

“All Chinese car manufacturers will have to stop production in May, if there is no way for those in Shanghai and suppliers nearby to restart operations and production,” He Xiaopeng, chief executive of Xpeng Motors, said Thursday on his Weibo microblog (our translation).  

The Xpeng leader is not the only boss to express deep concerns about the consequences of China’s current wave of lockdowns. Richard Yu, chief executive of Huawei’s consumer business group and smart car solution unit, said on Friday that technology and manufacturing businesses linked to suppliers in Shanghai could “stop altogether” in May if a solution is not found soon. “This is especially the case for the auto industry, and the economic loss could be huge,” Yu wrote on his WeChat Moments feed, according to a report by Chinese media Sina Tech (our translation). 

Auto giants are already feeling the pain of lockdowns that began in Changchun early in March and were extended later that month to Shanghai. Auto sales in Shanghai and Changchun, the capital city of northeastern Jilin province, have ground to a halt. The Shanghai outbreak could lead to a sharp 20% drop in vehicle sales, the China Passenger Car Association said earlier this week.

Meanwhile, Volkswagen’s auto sales in China tumbled 23.9% year-on-year to 754,000 units for the first quarter, which the company’s China CEO Stephan Wöllenstein on Thursday attributed to lockdown measures and chip shortages.

Tesla has been forced to halt assembly lines in its Shanghai factory since late March. General Motors is eking out some limited output with partner SAIC in Shanghai by asking workers to sleep on factory floors, while multiple major auto suppliers such as Bosch and Aptiv have suspended production, Reuters reported. 

China’s auto industry is now enveloped in a “perfect storm” with lockdowns added to the existing problems like semiconductor chip shortages and raw material disruptions due to the Russia-Ukraine war, said Stephen Dyer, a managing director at consulting firm AlixPartners. 

“The bottom line is that unless China can stamp out COVID completely, this uncertainty will hover over the entire sector like a dark cloud,” said Tu Le, managing director of consultancy Sino Auto Insights.

Both Dyer and Le expressed confidence that the industry can be on a path toward recovery if lockdown measures loosen soon, but the industry will see major losses if lockdowns continue in the long run.   

He Xiaopeng’s Thursday Weibo post noted that some of the related government officials are now “working hard to coordinate” reopening activities. Nio on Thursday also said that it is restarting operations in its plant in the eastern city of Hefei as the supply of key components improves slightly, without revealing details.

“The silver lining is that it is still only April so any lost production from late March can be made up via overtime in the rest of the year,” said Le from Sino Auto Insights. A similar sentiment is being expressed by AlixPartners’ Dyer, “If production halts are relatively short, it is possible for vehicle production and sales to quickly make up for production stoppages so that annual sales are less affected, as was the case in 2020.”

In addition, auto companies are now doing everything in their power to minimize damage and prepare for a rebound. SAIC-Volkswagen is reportedly (in Chinese) working 24 hours a day to track their shipments of components and is in contact with more than 500 suppliers to ensure supply. Volvo’s parent Geely has been assigning its employees to guard the highway junctions to transport goods from Shanghai with its own fleet, according to an April 11 report by Chinese media Caixin.

The immediate focus is on business recovery rather than profit. “Profit margins will be squeezed but their priorities right now should be to get production back online the second they get that thumbs up,” Le said.

Struggling with a global shortage of semiconductors and a sharp increase in the cost of battery materials, an increasing number of Chinese automakers are raising prices for electric vehicles (EVs). Geely, BAIC, and Chery has become the latest companies to implement pricing changes, following BYD, Xpeng, Li Auto, and others.

Details: Chery Automobile, a manufacturing partner of Jaguar Land Rover, said Wednesday on its Weibo account that from April 7, price increases on its vehicles will range from RMB 2,900 to RMB 5,000 ($456 to $786), without giving a breakdown of the specific price increases for each of its models.

• This is the second time in less than a month that Chery has raised the prices of its vehicles. The previous markup on its entry-level EVs cost consumers as much as an extra RMB 7,100, according to figures released in a March 17 announcement (in Chinese).
• Huawei’s auto partner BAIC also announced Wednesday that it will raise prices across its entire line-up of Arcfox-branded EVs, including those equipped with Huawei’s advanced driver assistance systems, starting from May 1. The company stated that full details will be released later this month.
• Geely’s premium EV brand Zeekr has also followed suit with a price increase, according to an April 2 statement (in Chinese), citing a significant rise in the cost of raw materials.

Context: A surge in the cost of battery raw materials such as nickel, driven by an ongoing supply chain crunch and the Russia-Ukraine war, has triggered a series of price hikes throughout the Chinese auto industry over the past few weeks.

• Tesla lifted prices for its locally-made Model Y electric crossover twice in March, while more than 10 Chinese major car brands lifted their prices by between 1% and 15%, TechNode reported.
• Some EV makers could lower prices to maintain their sales targets if demand starts to weaken during the second half of this year, Credit Suisse analyst Wang Bin said during an online conference on March 22.

READ MORE: Drive I/O | Chinese EV makers face price hikes as nickel prices soar, Didi to enter EV market

Note: This article was first published on TechNode China (in Chinese).

Ever since Huawei announced its push into the Chinese electric vehicle (EV) space last year, the industry has been watching the telecom giant’s moves. 

Huawei had some modest successes in the past year, first partnering with BAIC and Changan on their self-driving technologies. It also provided the powertrain system to a little-known Chinese automaker Seres, and its SF5 model debuted last April.  

Now it looks like the tech giant has pinned its hopes on a new car model released in partnership with Seres. Last December, the two companies released Aito M5, the first EV model equipped with HarmonyOS, Huawei’s alternative to Google’s Android operating system. (Huawei developed Harmony after Washington banned Google from working with Huawei in 2019.) 

On Feb. 18, TechNode China had a chance to test drive the Aito M5 in the southwestern city of Chongqing, home of the Seres’ factory. So how did Huawei do in EV tech? Here are our takeaways. 

Seamless connectivity for existing Huawei users

Aito M5 is the first luxury EV model manufactured by Seres. The hybrid sports utility vehicle claims to reach 1,242 km (772 miles) on a single charge and tank, with a price range from RMB 249,800 to RMB 319,800 ($39,518 to $50,592). By comparison, Chinese EV maker Li Auto’s plug-in hybrid crossover Li One, the best-selling medium-to-large size SUV in China last year, features a maximum range of 1,080 km and is priced from RMB 338,000.

The in-car version of the HarmonyOS shares a similar design language with Huawei’s smartphones along with some of the most frequently-used features. For example, we could activate most of the car’s functions by voice control. The car dashboard also has a shortcut bar for fast access to the most used features.

Aito M5 came with many apps, including a navigation map app, streaming services such as Tencent-backed Ximalaya FM, and Alibaba’s Youku. You can use Youku to watch videos or relax with music or audiobooks while driving when stuck in traffic. An alert system will also notify users of significant changes in road traffic.

Huawei’s ability to integrate its ecosystem with the car differentiates Huawei from other EV players. Huawei devices, smartphones, tablets, smartwatches can seamlessly work with the vehicle. Phone calls and messages could be synced on Huawei’s devices, including the car’s dashboard. That will probably become one of the biggest competitive advantages for rival EV players. 

Fast and accurate voice assistant

Huawei also brought a powerful in-car voice assistant called Xiaoyi to the car. The assistant is powered by Huawei’s in-house cloud infrastructure. During the test drive, the assistant provided accurate responses promptly. It recognized voice commands from riders in the front passenger seat and from the rear seats, opening windows and unlocking the doors for the respective speaker, for example. Huawei said Xiaoyi can control all the features in the vehicle.

Riders can even issue multiple commands to Xiaoyi without repeating the wake word (“Xiaoyixiaoyi” in Chinese). The assistant will continue to listen for another request after it completed the previous ones.

Huawei’s virtual assistant also serves as a voice guide. For example, Xiaoyi suggested turning on the in-car air purifying function when the car drove into a tunnel and encountered bad air quality. It also searched for a charging station and navigation when the vehicle battery ran low. 

Speaking to a virtual voice assistant for those control functions within the car is well-developed in the industry. Major rivals such as Nio and Xpeng have similar offerings. Nio owners could start a conversation with a voice assistant using the three-syllable phrase “Hi, Nomi,” while Huawei’s wake word “Xiaoyixiaoyi” has four syllables. Alibaba-backed Xpeng in late 2020 said each of vehicle owners used its voice assistants effectively 25 times per day on average, compared with 13 times from part of Ford models, Chinese financial media Caixin reported.

Integrating home and auto 

The Aito M5 helps Huawei build a connection between an EV and its wide range of digital and smart home devices. That connection is taking shape as Huawei and its auto partner have introduced dashboard-based smart home management tools for users to integrate their homes into the vehicle.

Being able to sync all their Huawei devices means users can read and send text messages directly by voice command in the car, then continue listening to music and podcasts at home exactly where they left off from the in-car system. However, the integration may not work as seamlessly for non-Huawei users. 

Challenging road ahead

The Aito M5 showcases in-car technologies that Huawei offers: a dashboard that performs many of the same functions as Huawei smartphones and a network that allows remote connectivity to a plethora of its home appliances.

And yet, the Chinese telecom giant and its obscure manufacturing partner will need to build a reputation for building quality cars. The Aito M5 is entering a Chinese EV market crowded with established players, competing heads on with similarly-priced rivals, such as Tesla’s Model Y and Li Auto’s popular crossover Li One. 

Huawei burrowed further into the auto industry with the launch of the first vehicle with its homegrown operating system. The Chinese government cut purchase subsidies on new energy vehicles (NEVs) by 30% this year, while scrapping ownership limits on foreign automakers’ investments in the auto industry. Chinese electric vehicle (EV) makers Nio, Xpeng, and Li Auto celebrated record annual deliveries of nearly 100,000 cars in 2021. Alibaba’s head of autonomous driving lab quit the company after more than four years. Didi, soon to delist, shows a few signs of approaching break-even with its first post-IPO earnings report.

Huawei intensifies auto plans with launch of first vehicle with ‘seamless’ Harmony

News: Huawei on Dec. 23 unveiled the first EV model equipped with its HarmonyOS operating system with manufacturing partner Seres. Huawei boasts that this in-car software system offers users a seamless experience of smartphone and car features across devices. Priced from RMB 250,000 ($39,063), the Aito M5 sports utility vehicle runs on electricity or fuel and has a 1,242-km driving range, which compares with the 1,080 km offered by Li Auto’s popular plug-in hybrid crossover Li One. Huawei said that it will showcase the vehicle in 180 Huawei shops across 42 cities and deliveries should start around Feb. 20.

Insights: As US chip sanctions crippled its smartphone core business, Huawei is trying to diversify its operations by breaking into the Chinese automobile sector. The Chinese telecommunications giant last April started selling Seres vehicles through its sales network, but they did not sell well. From April through November, Seres achieved sales of only 7,080 SF5 EVs, which were equipped with Huawei powertrain system and in-car software, according to figures published by China Passenger Car Association. Huawei has also partnered with state-owned automakers BAIC and Changan to equip vehicles with its autonomous driving hardware and software. Yet some industry insiders are doubtful that the tech giant will eventually make its own cars.

News link: TechNode 

Beijing sticks to plan to end EV subsidies in 2023

News: Chinese authorities on Dec. 31 unveiled long-awaited details about its national subsidy program for new energy vehicles (NEVs), such as all-electrics and plug-in hybrids. For 2022, beginning Jan. 1, subsidies to EV buyers will be cut 30% compared to 2021. According to a document released by the Ministry of Finance, the grants for EVs delivering driving ranges of at least 400 km (248 miles) will be cut by RMB 5,400 on an annual basis to RMB 18,000 ($2,824). Meanwhile, the subsidies this year for all-electrics with a driving range of 300 km to 400 km will be lowered to RMB 13,000, while those for plug-in hybrids will be cut to RMB 6,800. Beijing also reaffirmed its plan to eliminate subsidies entirely at the end of this year. Subsidies for purchases of new energy vehicles (NEVs) were already trimmed by 10% and 20% during 2020 and 2021, respectively. 

Context: In reaction, several overseas automakers have raised prices for their EVs in China to offset the subsidy cuts. The prices of Tesla’s popular China-made Model 3 and Volkswagen’s ID series EVs have risen by RMB 10,000 and RMB 5,400, respectively. Newer local EV makers are taking a more active approach to reduce the impact of the subsidy cut. Nio on Jan. 1 announced moves to make up the difference between sticker prices and reduced subsidies of its vehicles for customers who had paid a deposit before the end of 2021 and who will get their vehicles delivered by Mar. 31. Cui Dongshu, secretary general of China Passenger Car Association (CPCA), forecasts that the trimmed government incentive program could still give a great boost to the EV adoption in the country, noting that the manufacturing cost of EVs and batteries are falling significantly. Cui estimated China’s NEV sales could more than double to around 6 million vehicles in 2022 from the previous year and therefore maintain leadership in the world EV race.

News link: Reuters 

China lifts restrictions on foreign auto ownership

News: China now allows overseas automakers to operate wholly-owned ventures in the country’s passenger vehicle sector. As of Jan. 1, 2022, foreign firms are no longer limited to 50% ownership in their joint venture auto operations. The law had been in effect since 1994. In addition, foreign automakers can now set up more than two joint ventures that make the same type of vehicles.  The new ownership rules were detailed in a Dec. 27 release from the Ministry of Commerce and the National Development and Reform Commission, China’s top economic planner.

Insights: The move has been perceived as a positive signal that would create a level playing field for domestic and foreign carmakers, Cui Dongshu, secretary-general of the China Passenger Car Association, told state broadcaster CGTN. Nonetheless, Cui said there would be no significant impact on the market from removing the limits since they were expected. German auto major BMW is expected to become the first internal-combustion vehicle maker to take advantage of the new JV rules. It plans to up its stake to 75% from 25% in its JV with Chinese partner Brilliance Automotive by the end of 2022. The Chinese government since 2018 has gradually ramped up efforts to fully liberalize the domestic auto industry, starting by scrapping limits on foreign ownership of EV makers as it aims to be a global leader in the sector. Tesla became the first foreign auto brand to enjoy the relaxed EV regulations when it set up its wholly-owned venture in Shanghai in May  2018.  

News link: Global Times 

China’s EV trio post record deliveries numbers in 2021

News: The US-listed Chinese EV trio of Li Auto, Nio, and Xpeng launched the new year by publishing record delivery numbers for 2021. Each noted that they had delivered nearly 100,000 vehicles in 2021, despite global chip shortages. All had doubled their deliveries from 2020. Xpeng Motors had stood out among its peers, delivering a record 98,155 vehicles last year, up 263% from its 2020 delivery count. It surpassed Nio, whose annual deliveries totaled 91,429 electric crossovers. Nio was hit by supply chain issues and changes to its manufacturing lines during the second half of last year. Meanwhile, Li Auto saw 2021 deliveries surge 178% year on year to 90,491 vehicles.

Context: Chinese automakers have been riding the wave of growing popularity of EVs in the country, boosted by a years-long national subsidy program and special license plates to EV buyers, among other policy measures. Nio, Xpeng, and Li Auto, all once struggling to stay afloat and beset by lackluster sales, are the poster children of the revolution. The trio has laid out ambitious plans to expand their sales and service networks as they vie to grab market share from internal-combustion vehicle segments. Analysts surveyed by Seeking Alpha expected Nio’s annual revenue to increase by 74% this year, Forbes reported, while Citigroup forecast that Xpeng’s deliveries could almost double to 175,000 units in 2022.

News link: South China Morning Post 

Alibaba’s head of autonomous driving quits

News: Alibaba has parted ways with Wang Gang, a renowned computer scientist who has served as head of the tech giant’s autonomous driving lab under its Damo Academy research division for three years, Chinese media reported on Jan. 5, citing people familiar with the matter. A former tenured professor at Nanyang Technological University, Wang joined Alibaba in early 2017 as the chief scientist for the company’s artificial intelligence lab and was tasked with improving speech recognition capabilities for its first smart speaker device, the AliGenie X1, launched later that year. Wang has begun working on a startup developing robot vacuum cleaners and has raised an unknown amount of funds, the sources added.

Insights: The move is noteworthy in many ways. For one, Chinese industry giants had hoovered up research talents and poured resources into exploring the potential of artificial intelligence (AI) over recent years. The rush is over given a slower-than-expected process of implementing AI in industries, as many top scientists give up the high salaries in the industry for academia, while others start up their own businesses. Wang’s departure comes after Li Lei, the director of ByteDance’s AI Lab, left the company to join the University of California Santa Barbara as a professor last August, following the resignation of ByteDance Vice President Ma Wei-Ying a year earlier, SCMP reported. Chinese tech powerhouses also struggle with executive turnover and layoffs, as Beijing’s regulatory clampdowns continue to weigh on the sector.

News link: TechNode 

Didi’s first earnings report after IPO: $4.7 billion loss

News: On Dec. 30, Didi reported its first earnings as a public company. It wasn’t pretty: The company lost RMB 30.4 billion ($4.7 billion) on RMB 42.7 billion ($6.6 billion) in revenue during the September quarter of 2021. To compare, the company reported a profit of RMB 665 million on revenue of RMB 43.4 billion in the same quarter of 2020. Didi’s largest source of revenue is still its domestic ride-hailing business, which yielded RMB 39 billion, down 12.9% from the previous quarter. The company posted an 8% quarter-over-quarter decline to 2.36 billion in ride volume over the period.

Context: Still the largest ride-hailing service in China by ride volume and revenue, Didi has been at the forefront in Beijing’s wide crackdown on local tech companies. Did’s business has taken a hit from a suspension order that has kept its services off Chinese app stores since July. Having been listed in the US for less than six months, the Chinese mobility giant on Dec. 3 announced plans to take its shares off the New York stock market and instead pursue a listing in Hong Kong. Beijing has yet to announce the results of its cybersecurity investigation into Didi, and the company’s shares have fallen more than 60% from its IPO price.

News link: TechNode 

Huawei ramped up its involvement in the Chinese electric vehicle (EV) space on Monday, offering in Shanghai the first view of the Avatr 11 sports utility vehicle (SUV) with partners Changan Automobile and CATL. The first model in the Avatr brand, the car features a full suite of Huawei’s autonomous driving technology. Huawei partnered with carmaker Changan and battery supplier CATL a year ago to form the Avatr premium luxury brand of EVs.

Why it matters: The Avatr 11 electric SUV will be the second mass-produced car to get Huawei Hi, a complete automotive hardware and software suite that includes the company’s operating system Harmony OS as well as computing platforms for autonomous driving.

• The three companies expect the new models to take a significant share in the Chinese premium EV segment and to fulfill their ambitions to establish a “world-class, high-end” Chinese car brand, Changan Chairman Zhu Huarong said on Monday at a press conference in Shanghai.

Details: The first EV model produced with Changan and CATL features a supercomputer developed by Huawei and running at 400 trillion operations per second (TOPS). That compares with Tesla’s 144 TOPS for its two-chip full self-driving computer.

• The electric crossover will have a driving range of more than 700 kilometers (435 miles) in a single charge with batteries supplied by CATL. It will also boast a high-volt, fast-charging electrical system that will support a maximum of 200 kW of charging power. That is a bit lower than the charging power of Tesla vehicles which, offer up to 250 kW.
• Changan plans to build the Avatr 11 SUV in a manufacturing plant in the southwestern municipality of Chongqing. Annual capacity is projected to be 350,000 vehicles, with delivery to begin in the third quarter of 2022. Prices have yet to be released but Chinese media, citing Changan sources, have reported a figure around RMB 300,000 ($47,000).

Context: Changan, CATL, and Huawei announced their smart EV tie-up back in November 2020. That was followed by the establishment of a joint venture with the state-owned automaker as the biggest shareholder in Avatr.

• Changan, Ford’s Chinese manufacturing partner, in August announced goals to have 35% of its annual car sales, or 1.05 million out of 3 million vehicles, be EVs by 2025. Rivals Geely and SAIC have previously launched their own premium EV brands, called Zeekr and IM, respectively, as Chinese companies step up their competition with Tesla. 
• Huawei and state-owned automaker BAIC in April co-launched the Arcfox-branded Alpha S, the first mass-produced vehicle model equipped with Huawei’s self-driving technology and priced from RMB 388,900. That’s more than 50% higher than the price for Tesla’s China-made Model 3, SCMP reported.

READ MORE: Huawei begins selling EVs in stores, may offset sinking phone sales: CEO

As Chinese automakers pour money into autonomous vehicles (AVs), they’re relying on another emerging technology to be the eyes of self-driving cars: lidar. Chinese carmakers are promising that models with lidar will hit the road in the next six months, likely marking the first time the tech sees widespread commercial deployment.

What is lidar? Well, it’s a lot like radar, but it uses lasers. It can pick out details and see small things better—a small dog crossing the road, a pothole. It can see things other systems, such as cameras and radar, might miss. 

But established lidar systems are bulky contraptions that are proving hard to integrate into consumer cars. They’re expensive, too, driving up the price of cars that use them for self-driving functions. For now, it’s mostly seen on prototype robo-cars.

Despite the challenges, most Chinese AV contenders are counting on lidar.

Five Chinese lidar startups say that they’re close to making it work. It’s a tough act: the device has to be small enough to fit in a sedan, reliable enough to trust on the road, and cheap enough to fit into the price of a consumer car. While they won’t be the first to deliver road-ready systems, Chinese companies could be the first to do it at a practical price. 

In this week’s issue, we’ll meet China’s leading lidar players and see how they’re trying to make the emerging technology work.

Robo ski-racks

Most lidar systems on the road today are mechanical spinning lidar on AV prototype vehicles. You’ve probably seen one—they’re the ones that look like half a jetski, or three portly Alexas strapped to a ski rack. If you saw it in China, it was probably made by Hesai, the Baidu-backed startup that’s the dean of the field.

Hesai has dominated the experimental generation in China, making the systems used on most Chinese and some international prototypes. At least 10 out of the top 15 robotaxi startups worldwide are reportedly (in Chinese) among its clients, including Baidu, Didi, and Pony.ai. 

But to address size and durability, lidar makers are now turning to “solid state” sensors that eliminate most moving parts. These can fit the system into a small box, around the size of a lunch box, which fits easily into the grill or tucks under the roof of a car. But miniaturization creates new problems with range, price, and reliability.

In early 2019, Hesai unveiled its latest solid-state device, called Pandar GT and boasting a detection distance of 300 meters, but it is still validating the product and negotiating with auto clients, according to a prospectus filed by the company in January. 

So far, Hesai hasn’t found a customer to put its solid state technology into a production vehicle. Baidu, a leader in China AV tech, has skipped lidar for its self-driving package, known as Autonomous Navigation Pilot, despite years of collaboration with Hesai in mechanical lidars for its test fleets. Speaking to Chinese media during this year’s Auto Shanghai expo, Baidu’s vice president Wang Yunpeng said the company is developing a “reliable and affordable” lidar sensor for production cars with partners, without giving further details.

The key challenges

Five Chinese companies have made real progress on consumer-ready lidar, using a variety of approaches that strike different balances between range, price, and reliability, and reaching deals with major automakers to put their sensors into cars. But they each have difficult technical problems to solve. 

Huawei and Robosense, a Chinese lidar upstart backed by Alibaba, are betting on a technology called micro-electro-mechanical systems (MEMS), which uses a tiny mirror (1 mm to 7 mm in diameter) to steer light. With only this piece of glass moving, the whole unit can be smaller than one that has to rotate as a whole. Robosense is currently making lidar s¯ensors for US electric vehicle startup Lucid Motors.

Both MEMS players are struggling with range: the latest offerings from the two companies only work at distances up to 150 meters.

Experts believe self-driving systems will need to spot objects at least 200 meters away to have enough time to react. 

The MEMS solution has proven to be superior in terms of size, speed, and cost over other types of lidar sensors, according to an article published by three University of Florida engineers last year. However, a short detection distance due to the small mirror is a key flaw and, to deal with it, systems will likely need a larger detector, complicating assembly, the paper said.

With its latest offering boasting an impressive distance of 250 meters, Sunnyvale and Suzhou-based Innovusion seem to have solved the range issue. Their solution uses lasers at a wavelength of 1,550 nanometers, rather than more common 905-nm lasers. Considered a “sweet spot” by lidar developers, 1,550-nm light allows longer-range measurement and poses less danger to human eyesight. When using 905-nm lasers, power is usually restricted to avoid blinding people.

But Innovusion has faced challenges with production, for a physical reason: traditional silicon chips can’t detect 1,550-nm light, and therefore developers have to make custom sensors with an exotic material called indium gallium arsenide (InGaAs), which is more costly and more complex to manufacture. Setting up a production line for this less common technology is no easy feat, and the product may not be cheap.

Speaking at an online conference in March, Innovusion technology chief Li Yimin said getting lidars to work well on production cars had turned out to be more difficult than he expected. Nonetheless, he said his staff have been working “day and night” to meet the early 2022 timeline target set by partner Nio. The Chinese EV maker has promised to deliver its first sedan model enabled with its lidar sensors, the ET7, early next year.

“We have to pull ahead the production schedule of many advanced technologies including lidar … This has posed a lot of pressure on our teams and the partners. We are fully focused on achieving this goal and pushing ahead despite all those challenges,” Nio’s chief executive William Li said during an April earnings call.

Xpeng Motors, with partner Livox, claims it will be the first Chinese automaker to deploy lidar on production cars this October. But it is facing other problems. Livox’s sensors boast a unique method of scanning objects in a spiral or flower pattern, rather than in traditional horizontal linear scanning patterns. This helps its sensors create a higher-definition map of the world and could enable more reliable autonomous driving capabilities, the DJI-backed lidar maker has claimed.

However, the unusual scanning style requires the sensor’s motor driver to operate at a high rotation speed of over 6,000 revolutions per minute, more than five times that of sensors made by major French lidar marker Valeo. These speeds pose a big technical challenge for the five-year-old startup to meet reliability requirements for autos, since high rotational speeds usually come along with high abrasion and reduced lifetime for motors.

Livox recently said that it has resolved the issue with manufacturing improvements, based in part on DJI’s expertise in mechanical engineering from making drones, according to a Chinese media report published last week. However, Xpeng CEO He Xiaopeng last month during an earnings call acknowledged that the company is still testing lidars from multiple suppliers and is “very open” to other choices for new models scheduled for launch over the next two years.

“With an all-round sensing performance on our cars and our production capabilities, we’re very confident that we can be complementary to some of the disadvantages of lidar technology,” He added.

Some Chinese automakers and lidar startups are also seeking overseas partners. In addition to the Robosense-Lucid hookup, Chinese legacy automaker Great Wall Motors, a manufacturing partner of BMW, has teamed up with Germany’s Ibeo as its source for lidar sensors on production cars.

The price is right

After technical barriers, lidar-enable cars will have to leap another hurdle: cost. The sensors don’t come cheap.

China’s low-cost manufacturing advantage appears to apply to lidar, with the offerings of local suppliers usually costing 80% less than international competitors, or below $1,000, French market intelligence firm Yole Développement wrote in a report published last August.

However, lidar cars don’t look cheap. The latest premium electric sedan announced by Huawei and BAIC in April, equipped with three lidar sensors, has a starting price of RMB 388,900 ($60,785), more than 50% higher than that of Tesla’s locally-built Model 3. 

R&D and onboard computing could be driving the cost. The Chinese telecom giant in April announced that it will double its annual auto R&D budget for self-driving cars to $1 billion this year, without giving a breakdown of its investments. Apart from three lidar sensors, the hardware stack of the BAIC-Huawei sedan also includes five more cameras, and five more radars than a Tesla Model 3’s. Although cameras usually take significant computing power in the vehicle, the task of combining data from multiple sensors also requires much computing power and a more complex vehicle architecture. 

Mixed opinions

Not everyone agrees that AVs will need lidar. Tesla has been heavily relying on a cheaper, camera-based approach. Nissan and Baidu, are also skipping lidar, relying on cameras, radar, and ultrasonic sensors for AVs. 

Most other major players, including Google’s Waymo and General Motor’s Cruise, consider lidar an essential part of developing safe autonomous cars. “Lidar sensors contribute to the redundancy and overlapping capabilities needed to build a car that operates without a driver, even in the most challenging environments,” wrote Cruise CTO Kyle Vogt in a post in 2017.

Chinese EV makers are betting on the lidar-based approach in competing against Tesla, and have gained chances to validate the technology. “At the current stage our top priority is not to secure as many contracts as possible, but to fine-tune our products and hit volume production,” (our translation) a Livox spokesperson told TechNode last month.

But lidar prices are falling. As the sensors get cheaper, the case for them looks more and more tempting. “Lidar guarantees high reliability for self-driving cars when vehicle autonomy is still in its early stage. Such redundancy is worth taking in the name of safety,” (our translation) Paul Gong, a China auto analyst at UBS, told TechNode last month.

Chinese telecommunication giant Huawei announced major updates to its self-developed operating system HarmonyOS at a launch event Wednesday night. The proprietary system is now being used on phones for the first time, achieving an essential goal for the company. 

Why it matters: Huawei has long relied on the Android system, but it lost access to key services thanks to US sanctions in 2019. Huawei is aiming to build a new mobile ecosystem independent of Google’s Android and Apple’s iOS. However, the company chose to focus on promoting the system’s versatility across smartwatches, tablets, and other device at the launch event. 

• The new mobile system is unlikely to reverse plunging smartphone sales in overseas markets because the system is unlikely to support key Google applications such as YouTube and Gmail. 

Details: HarmonyOS is available on Huawei’s Mate 40 and Mate X2 smartphone models, as well as smartwatch Huawei Watch 3 and tablet MatePad Pro, the Shenzhen-based company announced Wednesday evening. 

• Huawei phone users need to fill out an application to receive an update to HarmonyOS, a Huawei phone owner told TechNode. Most Huawei phones currently run on a Huawei-customized Android system called EMUI. 
• The update process took about 10 minutes and all previously installed Android apps worked on HarmonyOS, said the user.
• Huawei told TechNode that HarmonyOS is “by no means a copy of Android or iOS.”
• “Huawei is not launching HarmonyOS to replace iOS or Android. The design logic is different, source codes are different, and use scenarios are different,” the company said in a statement to TechNode. 
• When Huawei first unveiled the system in August 2019, it said HarmonyOS would be open-source, but the system has remained closed-source. A Huawei spokesperson told Technode on Thursday that the company participates in an open-source project named OpenHarmony and contributes to it.

Context: HarmonyOS was widely seen as an alternative to Google’s Android mobile operating system, but it has taken Huawei about a little less than two years to deliver the system to phones. Huawei first deployed the system on smart televisions in August 2019 and then on smartwatches in September 2020. 

• Huawei said last month it expects more than 300 million devices (in Chinese) to run HarmonyOS by the end of the year. The company said it is talking to 200 global app developers to create apps for the platform.

Huawei’s auto push won’t include making its own cars, the company said Monday. The statement comes on the heels of a series of high profile moves into auto technology by the telecoms giant, and reports that it plans to manufacture its own vehicles. 

Why it matters: Huawei’s statement comes amid unease from existing carmakers that Huawei will enter the industry by manufacturing its own cars.

Details: Huawei has not invested in any automakers and is not interested in acquiring majority stakes in car companies in the future, the company said in a statement on Monday.

• The Chinese smartphone maker reaffirmed that it will stick with a “long-term strategy” of manufacturing key components for intelligent and connected vehicles.
• “Persistent rumors that Huawei is investing in its own car production capabilities, or that we own shares in car manufacturers, are unfounded and do not stand up to scrutiny,” Huawei said.
• Shares of BAIC Blue Valley and Changan Automobile, two of the company’s major auto partners, plunged 10% on Monday following Huawei’s announcement. Both companies’ shares slumped a further 4.8% and 4.4%, respectively, on Tuesday.

Context: China’s tech and auto industries have long swirled with rumors of Huawei buying stakes in domestic car companies.

• The smartphone maker seeks to tap into the autonomous and electric vehicle market as its core businesses faces pressure amid US sanctions.
• According to a Reuters report in April, Huawei was looking to acquire a controlling stake in the EV unit of lesser-known domestic carmaker Chongqing Sokon, in a move that would enable the tech giant to make Huawei-branded cars. Sokon’s latest model, the Seres SF5, has been on sale in Huawei stores since last month.

Huawei has appointed the head of its smartphone business to take charge of its young vehicle technology unit, part of a wider management reshuffle as the telecommunications giant tries to break into the fast-growing autonomous and electric vehicle sector.

Why it matters: The appointment is expected to initiate a round of restructuring which will place Huawei’s nascent intelligent automotive solution (IAS) business unit and the team that develops and sell in-car services for automakers under its core consumer business group.  

• The IAS unit was set up in May 2019 to develop self-driving system as well as key components for autos and was previously under the Information and Communications Technology Infrastructure managing board.
• Huawei’s consumer business group, is seeking adoption for an Android alternative called HarmonyOS targeting various connected devices including autos other than smartphones.

Details: Richard Yu, chief executive of Huawei’s consumer business group, was appointed concurrently CEO of the auto solutions unit. Current head Wang Jun will remain as the president of the unit, a source with direct knowledge of the matter told TechNode on Wednesday. Chinese media first reported the shift, citing an internal memo dated Tuesday.

• Yu was also relieved from his role as CEO of Huawei’s cloud and artificial intelligence business unit, an appointment made three months ago and reported by the South China Morning Post. Zhang Ping’an, current president of Huawei’s cloud unit will be promoted as the CEO of the unit and led by Eric Xu, Huawei’s rotating chairman.
• A month after putting EVs on sale in dozens of its flagship stores, Huawei is ramping up a push into electric and connected vehicles. Yu recently set an ambitious annual target of selling 300,000 EVs next year, Chinese media reported Wednesday citing sources.
• The company has secured around 6,500 orders for the Seres SF5, a plug-in hybrid launched by its partner Sokon last month, according to the report. It has planned to sell EVs in at least 200 shops by the end of July and increase that number to more than 1,000 by year-end.

Context: Huawei has been seeking new growth drivers as its smartphone sales plunged globally last year. The smartphone business is running out of key components from US suppliers while being cut off from Google’s Android by the US sanctions.

• The telecoms company last month co-launched Alpha S, a premium electric sedan targeting Tesla’s Model 3, with state-owned automaker BAIC and pledged to start delivering self-driving capabilities for highways and urban streets at the end of this year.
• Ford manufacturing partner Changan is also reportedly (in Chinese) on track to unveil a new premium EV brand, co-developed with Huawei and Chinese top battery supplier CATL, later this month. Huawei last month announced to spend $1 billion in research and development for autos this year.

Traditionally a time for automakers to flex their muscles, the Auto Shanghai expo this year held a surprise: It was China’s big tech firms that took the spotlight, outshining some of the country’s leading EV makers. 

Huawei made a big splash, unveiling its complete self-driving car technologies as it gears up to compete as a central player in China’s autonomous vehicle (AV) industry. Baidu, China’s biggest internet search firm, was not to be outdone, proclaiming itself the undisputed AV industry leader. The company said it expected to equip 1 million new cars in five years with its software.

Some of the biggest startup unicorns such as chipmaker Horizon Robotics were also busy, forging alliances with a list of automakers during the event as they work to establish themselves in the booming industry.

Highlight 1: Chinese tech giants bet on smart EVs

Overshadowing traditional carmakers displaying flashy concept models and production-ready cars, Chinese tech giants generated big buzz at Auto Shanghai this year. 

Tech giants unveiled advanced connected and autonomous driving solutions along with ambitious growth strategies, generating headlines and lending cachet to lesser-known auto partners. In particular, deep-pocketed Huawei and Baidu showed how they are ramping up aggressive pushes into the industry.

Huawei was one of the biggest draws at the show. Crowds swarmed the Arcfox-branded Alpha S electric sedans on display at its booth, equipped with the telecom giant’s hardware and software and made by automaker BAIC. 

After three years of co-development, the two companies said that they are on track to deliver the Alpha S by year-end. According to Huawei and BAIC, the vehicle features “best-in-class” self-driving capabilities for highways and busy streets to customers in China’s four biggest cities. Its other customers that hail from outside of the four cities will get the function via over-the-air software updates within the next two years as Huawei continues to work on its AV mapping.

To reach this target, Huawei has been plowing resources into its new auto business. Its Automotive Solutions unit will beef up headcount 25% to 5,000 employees this year, Wang Jun, president of Huawei’s intelligent Automotive Solution business unit, told Chinese media during the show.

Hands-free driving on busy city streets is widely considered a key milestone for mass AV adoption, one that Tesla has offered in its full self-driving (FSD) package since March. Eager to offset its flagging smartphone sales Huawei has been chasing this capability as it ranks auto among its top-priority businesses, though it is years behind industry leaders. At the company’s global analyst conference a week before Auto Shanghai, deputy chairman Eric Xu announced that Huawei will nearly double its annual auto R&D budget to $1 billion this year.

Lingering questions among industry analysts TechNode spoke with include understanding what progress Huawei has made on the self-driving front so far—a question it has not yet addressed—and how much safer its self-driving cars will be compared with traditional autos. The tech heavyweight faces a significant uphill climb. Many automakers remain skeptical that the “wounded tiger” will manage to make cars itself, these analysts said.

Huawei’s moves into the auto industry present a significant threat to Baidu. Wang Yunpeng, a vice president at the search firm, recently went on the counter-attack in a talk with Chinese media during the auto show, insinuating that even by throwing money at the challenge, competitors stood little chance of quickly catching up. 

Baidu, Wang said, is in the same camp as Google’s AV unit Waymo—it’s on the verge of commercializing its technologies. To compare, “companies like Huawei and Didi are probably still at the stage of testing their vehicles on fixed routes,” Wang said (our translation).

Baidu’s robocars have logged 10 million kilometers (6.21 million miles) on public roads, around a third of Waymo’s. During the event, Baidu launched what it boasted was China’s most advanced driver-assist system. Called Autonomous Navigation Pilot (ANP), the technology enables autonomous driving capabilities for vehicles made by Baidu’s automaker partners. The system will be first available to owners of these vehicles in 20 cities by year-end and then over 100 cities by 2023, the company said. Baidu said its self-driving tech will power at least one new model per month beginning in July and equip more than 1 million cars with its software over the next five years.

With blurred lines between vehicles and technology, how much tech is in a Baidu- or Huawei-enabled smart car? Using as an example WM Motor’s W6, the latest crossover from the Baidu-backed EV maker, the tech giant is responsible for most of the digital technology in the car, from the voice assistant to the map navigation in the operating system. WM Motor also sources Baidu’s self-driving software and hardware suite including 12 cameras, 12 ultrasonic sensors, a radar system, and a computing platform, while it independently develops the car’s mechanics, such as the powertrain system.

Chinese carmaker Chery is also clamoring to join Baidu’s friend circle, while BAIC is one of Huawei’s oldest allies in the automotive industry. However, some of the bigger names in auto want full control in developing the next-generation of vehicle architecture. For that reason, China’s biggest automakers, SAIC and Dongfeng Motor, displayed their latest offerings with software developed in-house or by Chinese AV unicorns they have backed.

During the expo, SAIC began to take orders for its first sedan, the L7, under its new premium EV brand IM. Short for “Intelligence in Motion,” SAIC co-launched the brand with Alibaba in November to compete against Tesla. The Volkswagen partner recently raised its holdings in Chinese AV upstart Momenta, aiming to offer urban self-driving capabilities early next year. Meanwhile, Dongfeng announced (in Chinese) that it aims to sell a total of 1 million EVs and master fully driverless technologies within the next five years.

Experts TechNode spoke with were optimistic about Chinese automakers’ moves into smart, electrified cars, thanks in part to local tech giants. Domestic players could account for 70% of auto sales from the current 40% within the next 10 years, Liu Guanghao, an investment director at Shanghai-based venture capital firm BeFor Capital told TechNode. “These driver assistance features are industry-leading, and the car interiors, such as the digital dashboards, appeared forward-thinking. This could help traditional automakers reposition their brands to be more premium,” (our translation) Liu said.

Highlight 2: EV Big Three momentum slows

Amid the hubbub from big tech and traditional auto companies, Chinese EV contenders were comparatively quiet, with no mention of new models at Auto Shanghai.

Well-funded Nio, Xpeng, and Li Auto are considered emerging EV leaders and the most promising of China’s Tesla challengers. Now, as competition heats up, they are collaborating with smaller tech unicorns—such as Li Auto’s partnership with Chinese chipmaker Horizon and Xpeng’s partnership with DJI’s Lidar unit, Livox—in an effort to maintain their leadership positions in the sector. 

But their outlook may be clouding over after internet giants overshadowed them during the expo.

On the first day of the show Nio kicked off a massive expansion of its charging infrastructure, announcing that it would open 100 battery swap stations and 500 supercharging stations in an area spanning eight northern provinces during the next three years. Meanwhile, Nio president Qin Lihong acknowledged to Chinese media on April 19 that big tech’s push into EVs was a challenge for the company considering Huawei’s established retail network, and reaffirmed its goal to expand its sales network by 60% to 366 stores nationwide by year-end.

There has been growing concern over EV upstarts lagging larger players in new product and technology development going forward. Nio CEO William Li last month expressed confidence that it would release the ET7, its next-generation electric sedan, on time, slated for delivery early next year. It would happen, he confirmed, despite steep challenges in advanced technology adoption. The company said it is doubling its R&D budget to RMB 5 billion ($774 million) this year. “Auto intelligence is where this game may be decided,” Li told Chinese media during the auto show.

Li Auto is seen as falling behind its peers in the AV race, having not yet delivered highway self-driving functionalities to its customers. Feeling the heat at the auto show, CEO Li Xiang said April 20 on Chinese social media platform Weibo that its self-developed AV system will be able to compete head-to-head against those by Huawei and Tesla next year. The EV startup in September announced plans to adopt Nvidia’s advanced supercomputer Orin for its second model, scheduled to launch in 2022.

The six-year-old automaker also turned to Chinese AI unicorn Horizon Robotics for help, and the two companies during the show deepened their partnership to an “in-depth cooperation in building upgradable smart and electric vehicles” (our translation). Despite its best efforts, Li Auto may be too late to catch up and gain a competitive advantage, as tech heavyweights venture into EVs, an analyst told TechNode at the show. 

Li Auto in February assured investors that it will triple its R&D spending to RMB 3 billion ($464 million) this year. Since December it has raised around $2 billion from a new share offering and bond sales to ramp up in-house R&D capabilities.

Xpeng Motors is ahead of its peers in driverless technologies, but also failed to wow the crowd during the show, despite unveiling its second sedan, the P5, which it displayed at a press event in Guangzhou a week earlier. Touted as China’s first production model equipped with two Lidar sensors, an expensive and essential component for 3D perception, the P5 is expected in the first half of 2022 to self-navigate driving scenarios such as being cut off on busy streets.

However, Xpeng did not release the P5’s pricing information as planned, spurring concern from industry insiders that the company’s best days are behind it. Several insiders and analysts that TechNode spoke with said that the P5 launch fell short of expectations while the cost of the vehicle’s hardware suite has remained high, pressuring Xpeng in pricing the new product, people close to the company told TechNode during the show.

Xpeng fired back on April 22, saying on its Weibo account that it had secured more than 10,000 orders of the P5 in 53 hours after opening orders (with refundable RMB 99 deposits). “The market feedback was beyond our expectation,” (our translation) a company spokeswoman said to TechNode on Wednesday. 

Big tech disruption

Chinese tech giants at the Auto Shanghai 2021 disrupted the already-breathtaking pace of China’s new energy and autonomous driving world by doing what they were there to do: build consumer brand awareness and deliver advanced car technology solutions. The disruption is boosting the perception of Chinese-built vehicles—no longer synonymous with cheap, low quality cars—up the industry value chain.

This disruption is pressuring Chinese EV upstarts’ lead in the industry. These EV firms will have to convince investors that, after notching early wins, they can maintain their momentum in an increasingly crowded playing field. 

“Big tech’s entry into the market would inevitably erode the influence young EV makers have in the industry. This has created an alternative regarding the competitive landscape in the next five to 10 years,” (our translation) Paul Gong, China auto analyst at UBS, told TechNode on April 21.

Chinese telecommunications equipment maker Huawei reported Wednesday that its revenue for the first quarter fell 16.5% year on year, in the company’s largest quarterly top-line decrease since US export restrictions took hold.

Why it matters: The decrease in revenue reflects the toll that US sanctions have taken on a company that was once the world’s largest smartphone maker.

• US sanctions imposed in 2020 and 2019 barred Huawei from access to critical semiconductors it needs to produce consumer products. The company was also banned from using Google’s Android mobile operating system, which heavily dented the appeal of its smartphone offerings in overseas markets.

Details: Huawei said in a statement Wednesday that its revenue for the first quarter of this year was RMB 152.2 billion (around $23.5 billion), a year-on-year decrease of 16.5%.

• The company said the results were “in line with forecast.”
• Net profit in the quarter was RMB 16.7 billion, up from RMB 13.3 billion in the same quarter last year.
• “2021 will be another challenging year for us, but it’s also the year that our future development strategy will begin to take shape,” said Eric Xu, Huawei’s rotating chairman.
• “No matter what challenges come our way, we will continue to maintain our business resilience. Not just to survive, but do so sustainably,” Xu said in the statement.

Context: Huawei said earlier this month that its revenue for 2020 reached RMB 891.4 billion, up 3.8% year on year, but slower than the annual growth rate of 19.1% in 2019.

• The company saw revenue growth from its consumer business—which includes smartphones, tablets, and computers—fall sharply. Growth in this segment fell to 3.3% last year from 34% in 2019. 
• Huawei’s revenue for the fourth quarter of 2020 fell 11% year on year to RMB 220.1 billion—the first time on record that its quarterly revenue contracted.

Huawei on Wednesday began selling Chinese-made cars equipped with its powertrain system and in-car infotainment solution, a move that the company said could offset a drastic decline in its global handset business resulting from US restrictions limiting its access to crucial technology.

Details: Three electric crossovers fitted with a Huawei’s electric drive and car connectivity system, Hicar, were on display at a Huawei store in Shanghai on Tuesday when the company announced during a press event that it would begin selling cars in its home country via its retail network.

• Called the Seres SF5 and made by little-known Chinese carmaker Chongqing Sokon Industrial Group, the extended-range electric vehicle will be the first car model available for test drives and purchase via Huawei’s online shop and 12 domestic flagship stores beginning Wednesday.
• Huawei aims to assuage customer range anxiety with the plug-in hybrid, which has a driving range of 180 kilometers (112 miles) in all-electric mode and more than 1,000 km powered by a gas engine, Chinese media reported citing Richard Yu, CEO of the company’s consumer business unit. The SUV is priced at RMB 216,800 (around $33,365) and up, and is scheduled for delivery beginning in May.
• Yu told Chinese media on Tuesday in Shanghai that he expected the company’s expansion into smart and electric vehicles would make up for the losses in its mobile business, acknowledging that its core business “has faced significant difficulties” (our translation) under US sanctions.

READ MORE: Huawei to begin charging phone makers for 5G patents

Context: With its strong technological capabilities and an ambitious expansion plan, Huawei has quickly emerged as a major force in the Chinese auto industry. It is eyeing the fast-growing intelligent, connected, and electric vehicle sector.

• State-owned automaker BAIC on Saturday released the Alpha S, the first electric sedan under its premium EV brand Arcfox, reported the SCMP. It is now the first production model equipped with Huawei’s full-stack—hardware and software—solutions, including its Harmony operating system and more than 100 key components such as Kirin chipsets.
• Ford manufacturing partner Changan Automobile on Monday at the Auto Shanghai expo said it will launch by the end of this year its first premium EV model co-developed with Huawei and battery supplier CATL, Chinese media reported citing company president Wang Jun.
• Growth in Huawei’s revenue from overseas markets sank last year after the Chinese telecommunication giant lost its access to American-made components due to US sanctions.
• Reuters reported in February that Huawei was in early discussions to sell two of its premium smartphone lineups, which the company later denied. Huawei in November sold its budget phone brand, Honor, to a state-backed consortium.

Last week, UK-based semiconductor design company Arm announced plans for the next generation of chips. The v9 architecture comes ten years after the release of v8, which is currently the standard used for mobile phone central processing units (CPUs) and many other processors.

There are some good articles on the new features v9 brings to the table, most notably the Realms feature, which promises to increase security by running applications while data is protected from inspection or intrusion by the host or any other software running on that host. The new architecture will also bring AI/ML extensions for AI support across its CPUs, network processing units (NPUs), and graphics processing units (GPUs), and the ability to improve performance by accelerating workloads in a CPU environment in ways that previously required external hard accelerators.

Licensing architecture

I’ve written an overview of major architectures in China elsewhere, but here’s a brief recap: Many Chinese companies design Arm-based chips, but most will license complete Arm cores on a single-use or multi-use basis, so they don’t have to design a core themselves.

More ambitious chip design companies may get an architecture license, which allows the licensee to change the design itself. This is what you need to create a customized core like the Kirin line of phone CPUs, designed by Huawei’s HiSilicon for use in its phones. But it’s difficult to build a core from scratch, so you have to be highly skilled.

Currently, only two companies in China have an architecture license for v8: Huawei and Phytium Technology, a fabless chip design company focused on Arm server chips..

Notably absent

Arm’s press release included several quotes from high-profile partners around the world, including representatives of three major Chinese smartphone brands; Xiaomi CEO Lei Jun, Vivo CTO Shi Yujian, and Oppo Head of Research Levin Liu. Notably absent were Huawei and Phytium Technology.

Both Huawei and Phytium previously bought architectural licenses from Arm, in part as a way to advertise their independence and control. To help them sell such a message Arm also created Arm China, a separate company that has its own issues.

The smartphone makers that did make the press release, have never been architectural licensees of Arm v8. This could change as they look to develop their own chips. All these companies have been investing heavily in building their own internal chip design capabilities.

However, I think for the time being they will stick with application processors from Qualcomm or MediaTek. As part of Arm’s presentation MediaTek announced that its first smartphone chip using the v9 architecture will be available by the end of 2021, sooner than any Chinese handset OEM would be able to design their own. That’s a lot sooner than they’re likely to be able to make their own.

Chinese handset companies will likely license Arm cores for individual designs, such as Xiaomi’s recent image signal processor design. Xiaomi’s previous attempt at an application processor was somewhat of a failure, and it makes sense for the company and others like Oppo and Vivo to focus first on simpler designs that can help them differentiate their products and also help them gain valuable real-world chip design experience.

So what are we to make of the absence of current licensees Huawei and Phytium? Are they not considered key partners, can they license v9 architecture, and does it even make sense for them to?

Can Huawei buy the v9 architecture?

Huawei has struggled to access semiconductors and IP since the US placed it on a list of companies which require licenses to buy US or US-linked technology. The absence of either company in Arm’s presser could imply that one or both won’t be able to upgrade to v9.

In response to such speculation, Arm has said that it can continue to license its IP to China including Huawei, concluding that its IP is of UK-origin and so not subject to the US ban. Ian Smythe, vice-president of solutions marketing at Arm said, “Following a comprehensive review, Arm has determined that its Arm v9 architecture is not subject to the US Export Administration Regulations,” adding that Arm had informed US government agencies of this conclusion.

That might not be the last word for Huawei. Ultimately, the US government may conclude that Arm’s Austin facility, which contributes to a lot of its high-performance architectures, means that Arm’s IP is sufficiently of US-origin to face export restrictions.

Phytium on thin ice

Phytium is not on the export ban list, and as such does not face the same restrictions as Huawei. However, it is on a list of “military-linked” companies that face restrictions on cross-border investments.

Also, the Washington Post reported today that that the Trump administration was planning to put Phytium on an export blacklist, but “ran out of time”. The article also reported Phytium chips are used at supercomputing centers that design advanced weapons systems for the People’s Liberation Army. This could heighten Washington’s scrutiny of the company, potentially leading to sanctions.

My best guess is that they will go ahead and secure a v9 license without much trouble, but they may be trying to keep a low profile in the hope that the US will not decide to target them. Watch this space.

Now or never

An architectural license gives Huawei and Phytium a certain amount of security: Once granted, the license is permanent, meaning Huawei would be able to continue designing new v9 chips indefinitely whatever actions Washington takes. But under present circumstances it might not be too useful.

An architectural license does not mean the licensee is licensing a specific core. They receive a set of specs for Arm’s cores and a testing suite. This allows the licensee to customize their own processor to fit their application. They can make cores that are faster, smaller, or less power hungry than standard Arm cores, or otherwise differentiated from standard Arm licensees.

Qualcomm and Apple rely on such licenses to create their chips, as did Huawei for its Kirin series. There are only a handful of such licensees globally, mainly because it costs a lot and requires a lot of time and internal expertise to create your own custom Arm core, while there are perfectly good cores available to license at a much cheaper price.

A license alone isn’t enough to make chips. If Huawei is able to buy an architectural license and does so, it still has no access to the EDA tools it needs and the fabs to actually manufacture a high-end Arm-based chip.

But it could be now or never. As competing companies move to v9, Huawei’s v8 license will soon be obsolete. It could actually make sense for the company to go in on an architectural license it can’t use for now in the hope that further down the line either restrictions on the company are removed or domestic self-sufficiency gets to a point where Huawei can get back into the high-end chip game.

With Nvidia’s acquisition of Arm also on the horizon, Arm could soon become a US-owned company. It could make sense for Huawei to lock in access to its IP now, although the same concerns could also motivate China to block the deal.

Conclusions

Access to IP is a chokepoint for semiconductors in China. As I’ve written before, RISC-V may help with this to some extent, but it isn’t as mature as Arm yet, and processor cores are just one of many different types of IP within a chip.

Despite RISC-V’s growth, Arm’s v9 architecture will be a core component for handset, server, IoT and automotive chips for the coming decade. For Huawei it may make sense to get in now, while it still can.

For its part, Arm will want to be free to license to Chinese companies and will be happy to take Huawei’s money. However, the reach of the US government can be long and if the Nvidia acquisition goes through I struggle to see companies on the entity list being allowed access. 

Some domestic analysts argue that Huawei should not rely on architectural licenses. “You may get a v9 license this time, but what about v10 or v11, etc? Does endlessly licensing foreign IP mean independence?” (my translation).

It would be strange to see China without any Arm architectural licensees, but that is a prospect.

We may also see new Arm licensees. Perhaps the likes of Oppo or Vivo will decide it makes sense for them. We all know they are investing huge sums into their own IC design capabilities.

Revenue growth for Chinese telecommunications equipment maker Huawei fell dramatically in 2020 as overseas sales shrank in the wake of US sanctions and disruptions caused by the Covid-19 pandemic, the company reported on Wednesday.

Why it matters: The decline comes as Huawei’s revenues shrank in all markets but China. Huawei was placed on a US trade blacklist in 2019, blocking the company from sourcing US-made components without permission.

• Huawei has faced pushback across international markets as countries around the world place restrictions on rolling out the company’s telecommunications equipment.
• Huawei’s smartphone sales have fallen drastically since the ban. In the fourth quarter of 2020, Huawei shipped just 33 million handsets globally, down 41% year on year, data from Counterpoint Research showed.

Details: Huawei’s revenue reached RMB 891.4 billion in 2020, up 3.8% year on year, but down from an annual growth rate of 19.1% in 2019.

• The company saw revenue growth from its consumer business—which includes smartphones, tablets, and computers—fall off a cliff. Growth in this segment fell from 34% in 2019 to 3.3% last year.
• “The US restrictions have impacted our business, especially our mobile phone business, and that resulted in modest growth last year,” Ken Hu, Huawei’s rotating chairman, said during a press conference on Wednesday.
• Sales from the company’s enterprise business were a bright spot, increasing 23% year on year to reach RMB 100 billion. Revenue from its carrier business increased just 0.2% annually to RMB 300 billion, slowing from 3.8% in 2019.
• The company’s net profit hit RMB 64.6 billion, up 3.2% on the year but slower than the 5.8% in 2019.
• China accounted for much larger portion of the company’s overall sales. The country made up nearly two-thirds of its revenue last year. In 2019, sales from China accounted for just under 60% of its revenue.

This article has been corrected to reflect that Huawei’s consumer business revenue growth fell, not its revenue as previously stated. 

Chinese tech giant Xiaomi is throwing its hat into the red-hot electric vehicle market with a RMB 10 billion ($1.52 billion) investment to set up a fully owned subsidiary for its auto business, to be led by chief executive Lei Jun.

Founder and CEO Lei at a press event in Beijing on Tuesday said Xiaomi had decided to strike out on its own on EVs in an effort to operate an ecosystem that will provide seamless user experience, and will not consider outside funding. Lei said he was aware of the complexities of making cars with extreme capital intensity, saying that the company is now ready to pour money into the project and face losses over a long-term period.

“We look forward to the day when Xiaomi cars will run on roads across the globe… This would be the last startup project in my career and I shall stake all I have to work this out,” the 52-year-old serial entrepreneur said (our translation). In an announcement published Tuesday, Xiaomi said the company plans to invest a total of $10 billion in the project over the next 10 years.

Following in Apple’s footsteps, Xiaomi has pledged to develop high-quality EVs with a “best-in-class” connected device ecosystem for global customers, according to Lei. The world’s fourth-biggest smartphone maker recorded shipments of nearly 150 million units in 2020 with an annual growth rate of 19%. Sales for competitors Samsung and Huawei shrank a respective 14% and 22%, according to figures from Canalys.

Xiaomi also boasted of having one of the world’s biggest Internet-of-Things (IoT) platforms, connecting 325 million smart home appliances as of last year, excluding handsets and laptops. It has also remained the top-selling television set maker in China since 2019, accounting for around 20% of market share, according to data compiled by Beijing-based consultancy All View Cloud (AVC).

However, the Chinese consumer electronics giant is seeking new sources of growth amid a slowing market. Its IoT and consumer products segment slowed sharply to 8.6% annually last year from 41.7% in 2019. The company also missed analyst revenue estimates for the fourth quarter, according to Bloomberg.

In the meantime, the global automotive industry is undergoing a landmark transition, and the shift to battery-electric, self-driving cars from traditional, internal-combustion vehicles has reached a major inflection point. China is expected to maintain its global leadership in EV production and adoption. IHS Markit forecasted that China will regain growth momentum at double-digit rates in 2021 and beyond, as the government continues to push the EV industry forward and consumer demand recovers.

Xiaomi has long been rumored to be plotting a move into the booming, crowded EV market. Last week it denied a Reuters report that it was in discussions with Chinese automaker Great Wall Motors for contract manufacturing. Shunwei Capital, a venture capital firm formed by Lei, invested in Nio in its Series A back in 2015 and became an early investor in Xpeng Motors two years later.

Baidu is also accelerating the push into the market. In January it set up a joint venture with automaker Geely. The Chinese search company has set a goal to launch its first own-brand EV within three years, chief executive Robin Li said during an earnings call last month.

Chinese telecommunications giant Huawei will begin charging smartphone makers royalties of up to $2.50 for each 5G-enabled handset they sell that uses its patented 5G technology, the company announced on Tuesday.

Why it matters: The plan means global smartphone makers like Apple and Samsung are likely to pay 5G-related royalties to Huawei, the owner of the world’s largest portfolio of 5G patents, potentially opening a new revenue stream for the company as its smartphone sales shrink.

• Huawei has declared ownership of 3,007 5G patent families—groups of the same or similar patents filed in different nations, according to GreyB, an intellectual property research firm.
• Around 18.3% of Huawei’s patent filings are considered “essential” to the 5G standard—protocols and technical specifications that allow connectivity between 5G devices, according to GreyB. Smartphone makers have to pay for those “standard essential patents,” or SEPs, if they want to make 5G-compatible devices.

Details: Huawei has set the royalty for its 5G SEPs to up to $2.50 for each device, said Ding Jianxin, head of Huawei’s Global Intellectual Property, at a press event on Tuesday. The royalty will be charged based on the sales price of the handset at a “reasonable rate,” Ding said.

• Other major 5G patent owners are charging more than Huawei’s planned rate. Nokia said in 2018 that it will charge EUR 3 (around $3.57) per device for its 5G SEPs. Ericsson said in 2017 that its rate would be between $2.50 and $5 per device.
• Huawei will negotiate royalty rates and possible cross-licensing of patents with Apple and Samsung, Huawei Chief Legal Officer Song Liuping said on Tuesday. 
• Huawei said in a statement that it expects to earn between $1.2 billion and $1.3 billion from its intellectual property inventory, but it didn’t say how much of it will come from its 5G patents. The company has said it has invested 10% to 15% of its revenue in research and development (R & D) every year for the past decade.

Context: Huawei is losing its status as a smartphone powerhouse following US sanctions over the past two years. The company has been cut off from the global semiconductor supply chain and now relies on stockpiles to maintain production. But it remains a major standard-setter in 5G, meaning the world’s largest handset makers will still need to cooperate with the company to make 5G phones.

• In February 2020, Huawei filed two lawsuits against Verizon, alleging that the US carrier infringed on 12 of its patents.

China is vastly increasing investment in semiconductors. In 2020, cash flowing into China’s semiconductor firms amounted to RMB 227.6 billion (around $35.2 billion) through the primary and secondary markets, a stunning 407% increase from the previous year, according to TechNode’s research.

China is the world’s largest consumer of semiconductors, and the lion’s share of revenue from purchasing these chips go to foreign firms. China consumed $143.4 billion worth of wafers in 2020, and just 5.9% of them were produced by companies headquartered in China. 

China has sought to make more of its own chips for years. In 2017, Chinese vice premier Ma Kai said: “We cannot be reliant on foreign chips.” Last year, President Xi Jinping called to “make technological self-sufficiency a strategic pillar of national development.” Beijing is expected to add “a suite of measures to bolster research, education, and financing” for the semiconductor industry to a draft of this year’s 14th five-year plan, China’s top-level policy blueprint for the following half decade, Bloomberg reported.

Concern over chip dependency has grown higher over the past two years as the US used semiconductors as leverage against companies like Huawei, a Chinese “national champion” which supports the country’s mission to lead the world in the next-generation wireless technology known as 5G.

The Trump administration banned Huawei from buying components from US companies in 2019 and cut the company off from third-nation suppliers that use American technology in 2020. The moves prompted Chinese business and political leaders to resolve to never again be put into such a situation.

China has massively increased investment in semiconductors over the past two years. The central and local governments have launched hundreds of policy funds, or guidance funds, to support the industry. The private sector also jumped onto the bandwagon. Venture capital investment into the semiconductors sector more than tripled in 2020 from the previous year. China also tapped its massive private capital market by opening up its financial market to let individual investors directly support high-tech firms that are not yet profitable. In 2020, 32 chip companies went public on China’s A-share market, up from 18 in 2019.

Big funds

The National Integrated Circuit Industry Investment Fund, known as the Big Fund, is the Chinese government’s main vehicle for semiconductor investment. The fund was first set up in 2014 by China’s Ministry of Finance and China Development Bank Capital, as well as several other state-owned enterprises, which together injected RMB 138.7 billion into the fund.

The Big Fund was established to invest in chip manufacturing and design, and promote mergers and acquisitions, according to China’s Ministry of Industry and Information Technology (MIIT), which supervises the fund.

It has shown a strong preference for semiconductor manufacturing companies, as China strives to produce cutting-edge 7-nanometer chips. The RMB 138.7 billion first Big Fund closed all of its investment projects at the end of 2019. Around 67% of its total investment went to semiconductor manufacturing firms, according to a report by Eastmoney Securities, a Chinese brokerage.

The first Big Fund had backed companies like Shanghai-based Semiconductors Manufacturing International Corporation (SMIC) and Huahong Semiconductor Limited. SMIC is China’s largest contract maker of semiconductors. It was also added to a US export blacklist in 2020.

In October 2019, the Big Fund raised another RMB 204 billion in a new funding round from the finance ministry, state-owned enterprises, and local governments.

Meanwhile, provincial governments have set up guidance funds totaling more than RMB 300 billion to support local semiconductor industries.

Opened stock market

In July 2019, China opened up a Nasdaq-style board on the Shanghai Stock Exchange. The STAR Market is the first Chinese exchange to allow unprofitable companies to list., revamping China’s earlier stock market rules.

However, not every unprofitable tech company is welcome. The Shanghai bourse has said that the STAR Market prefers companies that align with the “Made in China 2025” blueprint, Beijing’s plan for self-sufficiency in strategic sectors such as semiconductors and artificial intelligence.

Of the 216 companies listed on the STAR Market, 36 are semiconductors firms, as of the end of January. They include SMIC, which debuted on the market in July 2020 and saw its shares jump more than 200% on the first day of trading.

The STAR Market’s appetite for semiconductors has spurred a rush of activity in the sector. More semiconductor companies went public in 2019 and 2020 than all of those from 2010 to 2018. In 2020, some 32 chip companies went public on China’s A-share market, raising a total of RMB 87.6 billion. 

VC money more than tripled

At the same time, private capital is quickly moving into the sector.

In 2020, the total amount of VC investment into Chinese semiconductor companies grew more than 366% from the previous year to RMB 140 billion, according to data from Itjuzi, a Chinese VC funding database. The total number of VC investment deals also nearly doubled in 2020 to 413.

Thanks to a robust stock market that gives investors more options to exit, later-stage rounds in semiconductors have seen steady growth. The percentage of investment deals after Series A had increased to 55.8% in 2020 from 33.1% in 2018.

Unlike government-led funds, VC firms prefer chip-design firms to manufacturing companies. Chip designers accounted for around 67.2% of VC investment deals in 2020.

What’s next?

Despite heavy investment from the government and private investors, experts have said that China will fall far short of its 2025 goal.

While China’s goal is to make 70% of the chips it uses by 2025, IC Insights, a market research firm, forecasted that China will produce only 20.7% of its chip consumption in 2024, growing only 3% from 2020.

The country not only needs to produce more chips, but it also needs to make sophisticated chips that can meet the demands of modern computing devices, such as high-end smartphones and supercomputers. However, experts said mainland China’s chip-making capability is “generations behind” the leading edge in Taiwan.

Though a complete value chain in five years may be a dream, China is making progress in the sector. Changxin Memory Technology, a state-backed semiconductor startup, started mass production of the country’s first locally designed dynamic random-access memory (DRAM) chip in September 2019. HiSilicon, Huawei’s chip-design branch, ranked among the world’s top 10 vendors of semiconductors in August for the first time. 

But to emerge as a world-class semiconductor maker, analysts say, that China also needs to narrow a talent gap. It faces a talent shortfall of around 300,000 people, according to the China Semiconductor Industry Association.

How many of China’s top university graduates end up working for the domestic semiconductors industry? Where do Chinese chip makers find talent? Will the talent gap narrow as China continues to invest in the sector? We will dive into that topic in the next issue of this newsletter.

Huawei on Monday unveiled its latest foldable phone as the embattled Chinese smartphone maker ramps up efforts to entice premium phone users in its home market.

Why it matters: Huawei is focusing its limited production capacity on high-end models after being cut off from the global chip supply chain. The new phone is priced starting at RMB 17,000 (around $2,785).

• The company’s last foldable phone, priced at RMB 16,999, was met with great enthusiasm from Chinese consumers. The model sold out within seconds of being made available.

Details: The Mate X2 foldable phone features an 8-inch interior display when unfolded and has an additional 6.5-inch exterior display.

• The 256GB version of the Mate X2 starts at RMB 17,999 while the 512GB version costs RMB 18,999. The model will is available for purchase in China starting Thursday. The company did not say if it will be available in overseas markets.
• Two rounds of US sanctions last year have “made our operations extremely difficult,” said Richard Yu, head of Huawei consumer business, at the launch event on Monday. “But thanks to our partners and consumers… we survived in 2020.”

Context: Huawei, once the world’s largest handset vendor, is now ranked third globally after shipping 170 million units in 2020. 

• A January report by market research firm Trendforce estimated that the company’s smartphone shipments will drop to 45 million units in 2021.
• The sharp decline is mainly because the company sold off its budget brand Honor last year. The company has been cut off from the global semiconductor supply chain and now relies on stockpiles to maintain production.
• In January 2020, Huawei told Chinese media that it sells approximately 100,000 units of its Mate X foldable device every month.

China produced a scant 5.9% of semiconductors it used in 2020, according to a report published Thursday, indicating significant reliance on foreign technology as the country pushes for independence on chips.

Why it matters: China, the world’s largest semiconductor market, is determined to increase domestic production of chips, and plans to make 70% of chips it uses by 2025.

Details: China’s integrated circuit (IC) market increased 9% to $143.4 billion in 2020 compared with a year earlier, according to a Thursday report by market research firm IC Insights. China-headquartered firms, however, only made $8.3 billion worth of ICs sold in the country in the same year, the report said.

• Around 15.9% of ICs sold in China in 2020 were made locally, but most of them were made by foreign companies with wafer fabrication plants in the country, such as Taiwan Semiconductors Manufacturing Company, SK Hynix, and Samsung. Together, such firms made around 10% of chips sold in China last year.
• IC Insights estimated in the report that 60% of semiconductors produced in China were components for exported products. The country is home to some of the largest smartphone makers in the world, including Xiaomi, Huawei, and Oppo.
• Programmable logic devices, which are used to store the logic pattern integrated onto chips during programming, was the largest segment of China’s IC market in 2020, accounting for 26% of total wafers sold.
• Strong sales of smartphones and other computing systems during the pandemic drove growth in microprocessors, which was the second-largest IC product segment in China last year, according to IC Insights. The category grew 12% last year to $32.7 billion.

Context: In December, the US added China’s largest chipmaker, Shanghai-based Semiconductors Manufacturing International Corp (SMIC), to an “Entity List” that effectively cut the company off from American technology.

• Huawei, the world’s largest maker of telecommunications equipment, has been been plagued by US sanctions. The company has now essentially been cut off a supply of advanced semiconductors.

Huawei is seeking approval from authorities to acquire licensed digital payment provider Xunlian Zhifu, Chinese media reported.

Why it matters: The telecommunications giant is the latest of China’s big tech firms to expand into the digital payment industry, just as regulators are trying to break Ant Group and Tencent’s duopoly in the market with new antitrust laws.

Staffing: In addition to acquiring the Shenzhen-based licensed payment provider, Huawei is recruiting a “large number” of digital payment-related positions, such as deposit management, clearance, and bank cooperation, Chinese media reported on Sunday citing anonymous sources.

The acquisition: Founded in 2013 by Huawei’s competitor ZTE, Xunlian Zhifu was issued a nationwide online payment license in 2014. ZTE sold 90% of its stake in the payment provider to a Shanghai-based holding company in 2016.

• Huawei has operated Huawei Pay, a payment service that uses Near Field Communication and has been built into its smartphones since 2016. But bank card provider China UnionPay is responsible for transaction processing.

Antitrust: Regulators have ramped up anti-monopoly regulation in the last few months, following the suspension in November of Ant Group’s mega dual listing.

• Ant Group accounted for 55.6% of China’s digital payment market and Tencent for 38.8% as of June 30, 2020, according to market research firm iResearch.
• The two companies fulfill the criteria of a duopoly in the third-party payment sector, according to a a draft regulatory definition released in late January.

READ MORE: New digital payment rules likely to hit Ant Group, Tencent

New entrants: Several internet companies bought licensed digital payment operators in 2020, including Pinduoduo in January, and Bytedance and Trip.com in September.

• Bytedance launched an in-app payment tool in domestic short video app Douyin in January. The TikTok operator also launched a lending app in 2019.

READ MORE: Bytedance unveils Douyin mobile payment tool to rival Alipay, WeChat

Chinese tech giants typically focus on the consumer market. But their appetite for semiconductors is growing. 

These deals highlight a trend: Chinese tech giants are trying to secure their future growth by making investments in the semiconductors industry.

Funding China’s semiconductor industry also underscores tech giants’ concerns about being cut off from the global semiconductor supply chain after the US effectively banned Huawei from sourcing American-made components. 

Other active chip investors are Tencent and e-commerce behemoth Alibaba, which have focused on investing in the artificial intelligence chips and computer processors that power their cloud computing businesses. Earlier this month, Tencent participated in artificial intelligence chip maker Enflame Technology’s RMB 1.8 billion (around $278.3 million) Series C.

Tencent and Xiaomi have been targets of Trump’s actions against Chinese tech firms, but they have so far not had trouble getting chips.

Increasing investment in semiconductors is also in line with Beijing’s push for self-sufficiency in strategically important technologies. Unlike Huawei, which is locked in geopolitical disputes with the US and is barred from most high-end semiconductors that use American technology, the other companies making these investments are largely free from US sanctions.

China has vowed to produce 75% of all the chips it uses by 2025—and it is putting a lot of money behind this goal. Total VC investments into China’s semiconductor industry quadrupled (in Chinese) in 2020 to RMB 140 billion from the previous year. The country has also set up a series of government-backed funds to support semiconductors startups, including a $29 billion “Big Fund.”

In this issue of VC Roundup, we look into how Chinese tech giants are making investments in semiconductors.

Huawei: The Shenzhen-based telecoms company, which produces everything from smartphones to base stations for next-generation 5G networks, has felt the pain of a shortage of semiconductors. The company may have to stop manufacturing smartphones in the middle of this year if the US doesn’t lift sanctions.

• In April 2019, Huawei set up its Hubble investment unit, led by Bai Yi, the then president of Huawei’s global financial risks control center. The company had RMB 700 million in registered capital when it was founded. In October, Huawei increased the investment unit’s registered capital to RMB 2.7 billion. Hubble has invested in 27 companies so far, all of them in the semiconductor sector.
• In August 2019, three months after Washington added Huawei to a technology export list, Hubble made its first investment in a Hangzhou-based battery integrated circuit (IC) designer.
• In 2020, Hubble invested in 20 semiconductors companies, according to Chinese corporate information platform Tianyancha (in Chinese).
• They include NineCube, a maker of chip-designing tools; ALLSEMI, a semiconductor manufacturing equipment maker; and Onmicro, an IC designer of processors and radio frequency (RF) front-end modules used in handsets.
• Industry insiders believe that Hubble’s investments are linked to Huawei’s plan to “de-Americanize” its supply chain. “The investments are clearly replacing US companies they can no longer get access to,” a chip industry executive told the Financial Times in December.
• Some of Hubble’s investments, such as RF module designers Onmicro and Evisionics, are aimed at replacing US counterparts, like Qorvo and Skyworks, said Stewart Randall, head of electronics and embedded software at Shanghai-based consultancy Intralink. 

But chip design won’t “help too much” if they don’t have access to chip contract manufacturers like Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea’s Samsung, Randall added. TSMC and Samsung are also subject to US export restrictions on Huawei because their production lines contain American technology.

Xiaomi: Xiaomi made its first foray into chips in 2014 when it launched a semiconductor division that focuses on SoC design. In 2017, the unit, called Pinecone, launched its first and only mobile processor, the Surge S1, which was featured in Xiaomi’s Mi 5C smartphone.

• In 2019, Xiaomi began rethinking its chip ambitions by pivoting to investment. In July 2019, it bought a 6% stake in Shanghai-based chip designer VeriSilicon.
• Xiaomi has since become a more active chip investor than Huawei. In 2020, the company funded some 30 early-stage semiconductor firms, most of which are designers of smartphone chips.
• There is some overlap between Xiaomi and Huawei’s portfolios. Both companies have invested in Onmicro and SmartSens Technology, a Shanghai-based digital camera image sensors maker.

Internet companies: E-commerce giant Alibaba is also China’s biggest cloud computing service provider. The company has been pouring money into making silicon for its cloud computing business to reduce reliance on foreign chipmakers such as Intel and Nvidia.

Alibaba’s semiconductor push began in 2017. The company invested in a series of artificial intelligence chip makers such as Cambricon (in Chinese) and DeePhi Technology (in Chinese).

• In April 2018, Alibaba acquired C-sky, a designer of homegrown 32-bit processors for servers. Alibaba then merged C-sky and Damo Academy, an in-house semiconductor research institution founded in 2017 to form T-head, a chip-designing unit.
• T-head’s offerings include the Xuantie processor series and the Wujian SoC Platforms series, which are mainly used to power IoT devices; and the Hanguang neural processing unit (NPU), which is used in servers in Alibaba’s data centers, according to the company’s website.

Artificial intelligence chips have also caught Tencent’s eye. The company participated in three financing rounds for chipmaker Enflame between 2019 and 2021. 

• Tencent is China’s second-largest cloud computing service provider after Alibaba, but the company is not as active in semiconductor investments as Alibaba. 
• Apart from Enflame, the only other semiconductor firm Tencent had a stake in is Shenzhen-based SDMC, a smart television chipmaker. In August, Tencent led a RMB 44 million (in Chinese) financing round in SDMC.
• Internet companies’ investment in semiconductors is a “global phenomenon,” Randall of Intralink told TechNode. “Facebook, Google, Amazon, etc. all have their own chip teams now. Alibaba and Tencent followed this trend,” he said.

A mixed picture: While the US hasn’t targeted the majority of Chinese tech giants with technology export restrictions, some companies have already found themselves in the crosshairs of US-China geopolitical disputes. It’s unclear whether their investment strategies will mitigate this risk. Huawei has demonstrated that investing in chips can be more profitable than strategic.

• “For Chinese companies at least it is also some form of protection,” said Randall. “If we get cut off from Nvidia then we at least have some in-house expertise to maybe create something to keep our services running as they grow.”
• But Huawei’s efforts to invest in the domestic semiconductors supply chain didn’t prevent it from being cut off crucial chips it needs to produce smartphones. The company had to sell its budget handset brand Honor in November. Reuters reported this week that Huawei is in early-stage talks to sell its premium smartphone brands P and Mate.
• Randall says these may just be good investments. “Sometimes you can make more profit that way. Like Qualcomm makes more off a Xiaomi phone than Xiaomi,” he said.

Big deals: semiconductors edition

• Jan. 25: Xiaomi injects RMB 200 million into Cvitek, a Beijing-based chip designer for video surveillance equipment.
• Jan 7: Beijing-based AI chip designer Horizon closes a $400 million Series C2 led by British firm Baillie Gifford and Hong Kong-based Aspex Management.
• Jan 5: Enflame closes a RMB 1.8 billion Series C led by state-owned Citic Private Equity and participated by Tencent.
• Dec 28: Huawei’s Hubble investment unit injected more than RMB 10 million into Ninecube.
• Dec 21: Senscomm, a wireless semiconductors designer based in Jiangsu province, closes a RMB 150 million Series A led by Oriza Holdings and Xiaomi.

Chinese smartphone brand Honor on Friday unveiled its first model since Huawei sold the unit in November, under pressure from US sanctions.

Why it matters: Huawei sold Honor to keep the brand free from US technology export restrictions. Friday’s launch shows that the strategy has achieved initial success, as Honor’s new phone contains technology that Huawei still finds difficult to acquire.

• The processor which powers the new model, the Honor V40, is made by Taiwanese chipmaker MediaTek, which is subject to a US export regulation imposed last year. It requires chip vendors around the world to acquire a special license from Washington to sell products with American technology to Huawei.
• V40 users in overseas markets will reportedly be able to Google apps and services. Huawei is still blocked from using those services because of a 2019 US ban.

Details: The 6.7-inch V40 smartphone lineup starts at RMB 3,599 (around $556), featuring a 50 million-pixel camera.

• The V40 is powered by MediaTek’s Dimensity 1000 Plus system-on-a-chip (SoC), which is compatible with next-generation 5G wireless technology.
• It also uses Samsung’s charging technology, according to Honor CEO Zhao Ming.
• Zhao said in a live-streamed press conference on Friday that the company now has five research centers and more than half of its staff work on research and development.
• It’s unclear whether Honor bought MediaTek’s processors before or after its split from Huawei. MediaTek told reporters (in Chinese) on Wednesday that it is still “assessing its cooperation” with the company as it launches a new series of 7-nanometer Dimensity 1000 chips.
• The model is available to order online for domestic consumers starting Friday. The company did not announce an international launch plan during the press conference. It is not yet listed on its international website.

Context: Huawei in November sold Honor to a government-backed consortium. Honor is a budget smartphone brand that Huawei established in 2013. It competes with other budget brands such as Xiaomi and Oppo while the Huawei brand sells to the high-end handset market. 

• A report released by research firm Trendforce this month said Honor will become a direct Huawei competitor.

Based on more than 10 interviews with industry insiders and regulators, TechNode tells the story of how Huawei established itself in the Greek market—and how the tables have turned for the Chinese telecom giant.

In the first part of this three-part series, we explored how Huawei entrenched itself in Greek networks. This installment expands beyond Greece to the European Union, examining how the bloc’s and consequently Greece’s policy on telecommunications security changed over the years, thanks to espionage and a global anti-Huawei campaign from the US.

A wiretapping scandal involving the 2004 Olympics, the US National Security Agency (NSA), and the mysterious death of a Vodafone employee erupted in Greece in 2005. As the mystery unraveled, the Greek government, telecommunications industry, as well as the public at large found out the hard way that Washington would not hesitate to spy on Athens’ top leadership. US security agencies had taken advantage of the 2004 Olympics to eavesdrop on the Prime Minister.

In 2018, when the US began imploring its allies to avoid Huawei, it was essentially asking Greek telecoms firms to end their relationship with a reliable partner—one that had stood by them in hard times—in favor of a government that offered them military and political support, but had spied on Greeks for months.

Greece wasn’t the only European country to be shocked by American espionage activities that decade. Starting in 2013, the bloc found out through Edward Snowden’s whistleblowing just how extensively the NSA was snooping on member-states, including heads of state. 

The diplomatic fallout with the US was quickly patched up, but Snowden’s revelations contributed to the European Union’s growing concern over cybersecurity. 

Decisions made in Brussels would affect Huawei’s prospects in Greece as much as those made in Athens. Over the next few years, the EU Commission rolled out key cybersecurity legislation. 

In interviews with TechNode, industry and regulatory insiders stressed that Greece abides by EU rules when it comes to cybersecurity. As the bloc responded to the Snowden revelations and later, Washington’s warnings about Huawei, the effects trickled down from Brussels to Athens.

As the EU prioritized cybersecurity and made new rules, Greek governments gradually implemented them.

Our man in Athens

In the wake of the financial crisis, Huawei earned trust in Athens as it “stood by” Greece during its moment of need, as described in part one of this series.

At the same time, Huawei’s European rivals and US security agencies were caught engaging in clumsy episodes of corruption and espionage. Between 2005 and 2015, a major scandal shook Athens’ trust in its long-standing alliance with the US. 

In January 2005, Vodafone found a glitch in its text-messaging service and notified Stockholm-based Ericsson, which had supplied the equipment. Two months later, Ericsson told the telecoms operator that it had found a complex piece of malware—6,500 lines of unidentified wiretapping code in the text-messaging function. 

Ericsson gave Vodafone a list of over 100 tapped phone numbers, including those belonging to then-Prime Minister Kostas Karamanlis, Minister of Justice Anastasios Papaligouras, Minister of Public Order George Voulgarakis, and Minister of the Interior Theodoros Roussopoulos. 

Two days later, a network planning manager at Vodafone by the name of Kostas Tsalikidis was found hanged in his Athens apartment. Two days after Tsalikidis’s death, Vodafone informed the Greek prime minister’s office of the wiretapping. 

The Greek government proceeded with an 11-month preliminary investigation before breaking the news to the public. 

On Feb. 2, 2006, the three ministers whose phones had been tapped called a press conference (in Greek) to inform the public of the wiretapping. By March, the government was accused of covering up the scandal in parliament. These accusations largely overshadowed the actual wiretapping in public and parliamentary discourse over the next few years. 

At that point, Greek prosecutors, telcos, and the government knew that they had stumbled onto a massive security breach, but they couldn’t find hard evidence to prove who was behind the wiretapping. The highest levels of the Greek administration understood that the US had its hands dirty, but they did not discuss this publicly.  

This “major scandal” made the industry and government uneasy in the years to come. The culprit of the “unprecedented data breach,” as 30-year telco veteran Andreas Polycarpou called it, was still out there. Instead of resolution and convictions, the incident left a trail of whispers and suspicions in its wake. 

In 2008, the Greek Parliament passed two bills, in part to respond to the Vodafone wiretapping: In February, they voted to increase the powers but also checks and balances of the country’s intelligence service, which is responsible for counter-espionage activities. In June, they changed the legal framework on violating telecoms privacy, launching a new strategy for cybersecurity. The Greek anti-corruption watchdog disapproved of the new strategy, claiming that it would put politicians with little technical expertise at the helm of a rapidly changing technological environment. 

The Vodafone case was still a mystery in September 2011, when the telco operator informed prosecutors that one of the mobile phones used for the wiretapping had made frequent calls to the US Embassy in Athens. 

The Greek public had largely forgotten the Vodafone scandal, but behind the scenes the anti-corruption prosecutor was still working to hold the culprits accountable. In 2015 then-Greek prosecutor Dimitris Foukas issued a warrant for the arrest of William Basil, a US Embassy employee who was suspected to be an undercover CIA agent key in the wiretapping. The prosecutors were also investigating Basil’s connection to a plot to assassinate the former prime minister, Kostas Karamanlis. 

Foukas was not reachable by phone. His staff told TechNode that the only way to speak to him would be to meet him in person at the Athens first instance court, which he now presides over. 

When Edward Snowden blew the whistle on NSA surveillance, the Vodafone mystery was cracked open. Unveiled documents showed that the NSA had never removed its wiretapping system installed during the 2004 Olympics in Athens. 

While giving the NSA access to Greek telephone networks was not unusual during such a high-profile event, the US intelligence agency turned it around to spy on top Greek officials. Neither the CIA’s operation in Greece, the US Embassy, nor the Greek government had any knowledge of the operation until Vodafone discovered it, the Intercept and Greek newspaper Kathimerini reported in 2015.

In 2018, the death of Kostas Tsalikidis was ruled a premeditated murder, and prosecutors pressed charges against unknown suspects. His family claimed he was murdered because he knew too much about the NSA’s abuse of Vodafone networks. Subsequent Greek governments and prosecutors refuse to officially comment on this theory.

The US was caught red-handed peeking into Vodafone’s telecoms networks to spy on Greece, its ally, without the knowledge or permission of local authorities.

Yet the Vodafone scandal didn’t make a big difference on Greece-US relations, according to Nikos Moumouris, a journalist who covered the story for newspaper Eleftherotypia at the time. It was like throwing a “pebble in the sea,” he told TechNode. “Maybe it wasn’t a pebble, maybe it was a rock. But once the story died down, it was back to business as usual [with the US].”

“Those were different times” when Greece’s capacity to investigate the breach was limited, Moumouris said.

The Snowden files 

Back in the 2000s, Greece wasn’t the only country glossing over telecommunications security. “Historically, operators simply didn’t pay a lot of attention to IT security. Other operators simply didn’t care,” said Jan-Peter Kleinhans, Project Director of Security in the Internet of Things at Berlin-based think tank Stiftung Neue Verantwortung.

The 2013 Snowden leaks were a big shock to the EU. The NSA’s privacy abuses cut deep among politicians and the public. It was a “very loud wakeup call as regards to potential threats to our fundamental rights, data protection and privacy,” an EU Commission spokesperson said.

The EU’s most powerful countries were among the biggest targets of US surveillance: France, Germany, Italy, and the Netherlands. 

Greece was the target of so-called Blarney, an NSA program designed to get access to fiber optic cables, switches, and routers, wrote journalist Glenn Greenwald, who worked closely with Snowden to publish the NSA documents, in his book No Place to Hide. 

But TechNode hasn’t found any records of the Snowden revelations being discussed extensively in the Greek parliament. 

One prominent member of the Greek parliament, Theodoros Pangkalos, said he wasn’t surprised by the revelations: The Greek intelligence service had also spied on the US embassy decades ago, he said. 

Given its history with the Stasi, East Germany’s massive secret police and intelligence agency, Germany is extremely touchy about surveillance. Relations between Washington and Berlin plunged. German Chancellor Angela Merkel, whose phone was allegedly tapped for 10 years, expelled the CIA chief from the country. 

The diplomatic fallout from the NSA revelations was quickly patched up. In February 2014, French President Francois Hollande said “mutual trust has been restored” between the two countries, less than a year after he found out the NSA had collected data for 70 million phone calls in France in a single month. 

But the EU had woken up to the importance of cybersecurity—and started tightening cybersecurity legislation for member-states. 

Baby steps

In July 2016 the EU began to take steps that would push Greece to act on cybersecurity: the “first EU-wide legislation on cybersecurity,” as the EU Commission called it, came into force. The same year, the EU Commission published the EU Directive on Security of Network and Information Systems (known as the NIS Directive), an “action plan” for the bloc’s transition to 5G networks, outlining key considerations. The document didn’t mention security of 5G networks. 

Huawei was not the controversial company that it is today, so it wasn’t a prominent part of the conversation as implementation took place. The original NIS Directive didn’t spell any trouble for Huawei: It was relaxed compared to later iterations. 

As an EU member, Greece had to follow the Commission guidelines. But Greece had consistently lagged other EU countries when it came to digital policy, including cybersecurity. 

The 2016 NIS Directive was geared more broadly toward digital service providers; the word “telecommunications” is mentioned only once in the law, in an article about security in the shipping industry. 

Greek Prime Minister Alexis Tsipras set up a dedicated cybersecurity agency (in Greek) in 2017 by presidential decree—four years after Spain, itself seen as a late mover. The Ministry of Digital Policy under Nikos Pappas published an 18-page National Cybersecurity Strategy in March 2018—five years after Italy, another member-state viewed as late to the party.

In July 2018, the EU Commission told Greece to hurry up and adopt the NIS Directive into its national law. In November, the parliament conferred on the legislation. The debate transcript is 130 pages long, but not because the merits of the bill were hotly contested. 

Members of parliament took the November debate on the cybersecurity legislation as an opportunity to hash out unrelated grievances: farmers’ strikes, taxes on broadcast operators, austerity measures, protests, the reputation of Kostas Simitis, who served as prime minister from 1996 to 2004, and so on. Huawei was not mentioned. 

The only parties that voted against the cybersecurity law and managed to stay relatively on the matter at hand during the debate were members of the far-right Golden Dawn, which was recently ruled a criminal organization, and the Greek Communist Party. Golden Dawn brought up surveillance by US security agencies and big tech to argue that digital policy is used against nationalist and conservative groups. The communists argued that the cybersecurity legislation will trample the right to privacy to serve US and NATO interests. 

After the marathon meandering debate, the law was passed and came into force a few weeks later. 

Over the next few years, the proliferation of cyberattacks, privacy scandals, increasing digitalization, and US pressure brought telecommunications security to the center of the bloc’s digital policy. The conversation was slow to take off, but quickly ramped up in 2018 and 2019. 

“The issue of security is moving up in the EU agenda,” and so Greek governments and companies are increasingly prioritizing it, George Tsaprounis, head of corporate affairs at Greek network operator Wind Hellas, told TechNode. 

The squeeze on the EU

Because Athens faithfully follows EU rules on digital infrastructure, Washington’s anti-Huawei pressure on the EU trickled down to Greece. 

With the EU and member-states already on edge over cybersecurity, the Trump administration started its global campaign against Huawei in 2018. By December of that year, it started to bear fruit: The EU Commission’s then-Vice President for the Digital Single Market Andrus Ansip said that the bloc should be “worried” about Chinese companies like Huawei because they might install “mandatory backdoors […] It is not a good sign when companies have to open their systems to this kind of secret services,” he said. 

In 2019, the US ramped up its anti-Huawei lobbying in Europe. In a visit to Germany in May 2019, US Secretary of State Mike Pompeo threatened that European countries which use Huawei equipment could be cut off from US intelligence. 

That wasn’t enough for Pompeo, who continued to argue for more restrictions on the company. Ahead of a key meeting between EU leaders to discuss security measures for 5G, Pompeo published an anti-Huawei op-ed on Politico EU. 

Pompeo asserted that “it’s critical that European countries not give control of their critical infrastructure to Chinese tech giants like Huawei, or ZTE.”

Brussels conceded to the US argument that the country of origin of an equipment vendor can pose a security risk, but has not been willing to go all the way and ban Huawei. 

But Washington wanted more assurances. It launched a renewed campaign to rid telecom networks from Chinese technology in August 2020. Under the banner of the so-called Clean Network, the US started collecting pledges from countries to preclude “untrustworthy vendors,” like Huawei, from their networks. 

Trust no one 

Some within the EU and Greece disagreed with Pompeo’s campaign. They argued there was no evidence that Huawei was doing anything the US wasn’t already doing, using gear from Huawei competitors. 

According to many cybersecurity experts, no vendor is completely trustworthy or infallible. The only solution is to diversify and mitigate risks. The more vendors you buy from, the less you are exposed to any one, and you set up security checks and balances; one supplier might catch the others’ mistakes. 

“As German industry, you’re between two camps. You can choose which backdoor you want: A Chinese backdoor or a US backdoor,” Steffen Zimmermann, the lead expert on industrial security at German industrial lobby organization VDMA, said in March 2018. VDMA members include heavyweights like Bosch and Siemens. 

While Pompeo was making the rounds in European capitals, Greek officials kept quiet on Huawei. Greek President Prokopis Pavlopoulos visited Huawei’s Beijing office in May 2019 during a five-day official visit to China. He commended the company’s work in Greece and the two sides promised to continue their cooperation. Back in 2008, the same politician had proposed the bill to revamp the Greek intelligence service after the Vodafone wiretapping scandal.

To Greek insiders, the debate felt somewhat moot. From a technical perspective, the risk of espionage or compromised communications is not affected by the country of origin or the equipment, they told TechNode. 

“There are countries that do not rely on Huawei’s infrastructure. That doesn’t mean that they don’t have cybersecurity issues to solve,” Antonia Petrovits, a spokesperson for Huawei Greece, told TechNode.

Whichever company builds a network will have some capacity to use the infrastructure for its own purposes, the Greek telecom technical experts TechNode spoke with agreed.

Europe’s large telcos have recognized this risk for years. To avoid becoming dependent on any single supplier, and the backdoors or vulnerabilities in their equipment, many of Europe’s carriers have diversified their supply chains, procuring equipment from different vendors. 

In January 2020, the EU Commission officially included procurement diversification in the bloc’s guideline for developing 5G networks. ”Dependency of one or several networks also significantly affects national and EU-wide resilience and creates single points of failure,” the Commission said. 

Greece’s latest cybersecurity strategy, released on Dec. 3, made the same recommendation. 

Delegating the Huawei decision

In January 2020, Brussels again tried to resolve the Huawei issue—by passing the buck to member states. In its official guidance on 5G adoption, the EU Commission asked national regulators to consider elaborate technical issues—in addition to equipment suppliers’ country of origin.

The EU has limited jurisdiction over member-states and, at least on paper, didn’t want to single out China. Directives “do not target or single out individual countries or suppliers,” the EU Commission spokesperson said. 

The EU’s directive on 5G  handed the decision on Huawei back to member-states. Every company which complies with EU rules can access the market, but individual countries reserve the right to exclude companies for national security reasons, the spokesperson said.

The January 2020 EU’s 5G cybersecurity “toolbox” places a lot of responsibility on member-states’ regulators and network operators, Kleinhans said. It’s up to them to decide whether Huawei will be excluded from 5G networks. 

The 5G toolbox asks countries to consider the “risk of interference by a non-EU country” when evaluating equipment—in other words, deeming Chinese-made equipment a risk simply because it’s Chinese.

The Greek network regulator did not respond to TechNode’s multiple requests for comment. 

The Commission’s delegation of the choice on Huawei has led to a patchwork of responses reflecting the bloc’s political diversity, from Sweden’s hard ban, to Estonia’s “Huawei law,” to Ireland’s continued relationship with the Chinese company. Some telecom operators like Vodafone have taken matters into their own hands and are replacing Huawei gear with alternatives. 

It is hard to assess how much ground Huawei has lost, given the patchwork of responses and lack of public information.

Playing politics

Greek policy-makers face a diplomatic dilemma with Huawei. The company has a good track record of helping the market and offers competitive products. Security is a concern, but from a technical perspective Huawei’s gear is not more risky than its competitors, industry insiders said. 

All equipment manufacturers, regardless of their country of origin, can open a backdoor to spy on communications. “There might be access points to the equipment, but these are for service purposes. Anyone can open a backdoor that is intended for service,” Polycarpou said. 

Many operators told TechNode that they don’t see Huawei as a threat to their security—at least, not a bigger threat than the US. To them, security is a technical question that has been politicized. From a purely technical perspective, Huawei is at least on par with its Western counterparts. 

But the diplomatic balance around Huawei is delicate. Greece needs its friendships with both the US and China. 

Keep buying Huawei, and the US threatens to cut off military ties. To Athens, Washington’s support in defense issues is key to keeping Turkey, a country with four times Greece’s GDP, at bay: The two neighbours have a long history of military confrontation which flared up in August when Turkey threatened to go to war over a maritime dispute. 

But giving Huawei up could be an affront to China. The EU is well aware of the political nature of an anti-Huawei decision. Considering the threats posed by state or state-backed actors is a “non-technical” issue, it said in its October 2019 5G security assessment. 

When Sweden banned Huawei in October, the local telecommunications regulator said it was following the advice of military intelligence, which had found China to be “one of the biggest threats against Sweden.” 

An outright Huawei ban would inevitably call China out as a threat to Greece’s security when the two countries remain, at least on paper, allies. In Greece, such a statement would incur a high political cost. Despite its longstanding alliance with the US, Athens has been courting China to invest in Greece. 

In a landmark privatization deal in 2016, Chinese state-owned shipping giant Cosco acquired a 51% stake in Piraeus port, adjacent to Athens, for €280 million ($343 million), and is due to gain another 16% should it spend an additional €400 million on the port by the end of 2021.  

Five days after Turkish president Recep Tayyip Erdoğan threatened military action against Greece, the US ambassador to Athens Geoffrey Pyatt tweeted that Greece had joined the Clean Network, which is widely regarded as an anti-Huawei initiative. 

The next month, Pompeo visited Mitsotakis’ hometown on Crete island to talk about defense issues for which Greece is looking to the US for support, and vice versa; Mitsotakis’ focus was Greece’s dispute with Turkey, and Pompeo’s was Russia’s involvement in the Mediterrenean, particularly in Libya. 

The secretary of state also visited a naval base on the island that offers support to US war and logistics ships. He announced the “US Navy’s newest expeditionary sea base,” a $498 million ship, would be moved to the Greek port. 

At a joint press conference with the Greek Prime Minister during this visit, the two politicians announced enhanced cooperation on military issues—and Pompeo welcomed Greece to the Clean Network. However, Mitsotakis didn’t mention “clean” telecoms, during the press conference or anywhere else. 

Pompeo claims Clean Network members will make “efforts” to rid their networks of untrusted vendors, including Huawei. So do international media outlets. 

The Greek government has never confirmed whether it will make such efforts—or that it has joined the Clean Network. 

It’s not clear what this means. The current Greek administration has long kept a “no comment” policy on the Huawei controversy, and in 2020 its alliance with the US has deepened, so it could be that it has joined the Clean Network and is merely letting Pompeo do all the talking. 

If Greece has entered into an agreement on 5G networks with Washington, it could face retaliation from Beijing. 

It’s not clear whether the small Mediterrenean nation will embrace the Clean Network and if so, how it will interpret it. 

The next installment of this series explores what the Clean Network means in the Greek context, if anything, and Huawei’s position in the Greek market. 

The Trump administration is revoking certain licenses for some suppliers of Chinese telecommunications firm Huawei, Reuters reported Monday, and it warned it would deny more applications.

Details: The Semiconductor Industry Association, an American industry group, said on Friday that the US Department of Commerce had issued “intents to deny a significant number of license requests for exports to Huawei and a revocation of at least one previously issued license,” Reuters reported, citing people familiar with the matter.

• One of the sources in the report said eight licenses were revoked from four companies. Intel, which supplies Huawei with systems-on-a-chip (SoCs) used in smartphones and personal computers, was among the companies.
• Another affected company was Kioxia Corp, a Japanese flash memory chip maker formerly known as Toshiba. The company had at least one license revoked, said two Reuters sources.
• Some 150 licenses for $120 billion worth of goods and technology ready to ship to Huawei were pending approval before the latest action.
• Another $280 billion of license applications for goods and technology for Huawei have not been processed, according to Reuters.
• The Commerce Department has told companies that it “intends to deny” those applications.

Context: According to two US government regulations issued in 2019 and 2020, companies around the world have to seek a special license from Washington if they want to sell products that contain US technology to Huawei.

• In September, Intel received a license from the US government to sell to Huawei. In November, US chipmaker Qualcomm was approved to sell 4G chips to the Chinese company.

Shares of Chinese smartphone maker Xiaomi plunged 11% on Friday morning after the Trump administration added it to a blacklist, forcing Americans to divest holdings and barring share purchases.

Why it matters: Xiaomi is the second-largest smartphone maker in the Chinese market and ranks fourth globally. The company has been caught in US-China geopolitical tensions for the first time, its troubles bearing resemblance to its main rival Huawei.

• However, Xiaomi is unlikely to face the same degree of US restrictions as Huawei, which has been essentially barred from the global high-end semiconductor supply chain. The Trump administration will end next week and there is no sign that it will place export restrictions on Xiaomi.
• A similar move against some Chinese telecom companies had led to their potential  delisting from US stock markets. Xiaomi is listed in Hong Kong, indicating that the price plunge on Friday could be shareholder panic selling.

Details: The US Department of Defense on Thursday added Xiaomi and eight other Chinese firms to a list of “Communist Chinese military companies,” according to a statement on its website. An executive order signed by US President Donald Trump in November bans American investment in such companies.

• Other companies added to the list include Commercial Aircraft Corporation of China, a state-backed aircraft maker; Gowin Semiconductor, a Guangzhou-based chip designer; and Beijing Zhongguancun Development Investment Center, a government-led venture capital firm.
• Shares of Xiaomi in Hong Kong dropped more than 11% on Friday morning.
• Xiaomi said in a statement Friday that it had confirmed that it is “not owned, controlled, or affiliated with the Chinese military,” and that the company’s products are all for “civilian and commercial use.”
• A Xiaomi representative did not immediately respond to a request for comment.
• US investors will be prohibited from buying Xiaomi shares and will have to divest their holdings by November, according to the executive order.

Context: Xiaomi shares reached a historical high of HKD 35.3 (around $4.6) on Jan. 5, driven by strong sales and a weakened Huawei. Market research firm Trendforce expects Xiaomi will be ranked the world’s third-largest smartphone vendor in 2021 while Huawei, which ranked third in last year, will fall to seventh this year.

• The Trump administration reportedly considered adding other Chinese tech giants including Alibaba, Tencent, and Baidu into the investment blacklist. All three companies are listed on US stock markets.
• On Wednesday, the Wall Street Journal reported that the US had decided to not to add them to the blacklist.

Update: This article has been updated to include a statement from Xiaomi and to correct a typographic error.

Chinese telecommunications giant Huawei, once the world’s largest handset vendor, will fall to seventh place in global smartphone shipment rankings in 2021 according to a report published Tuesday.

Why it matters: Huawei is losing its status as a smartphone powerhouse following US sanctions over the past two years. The company has been cut off from the global semiconductor supply chain and now relies on stockpiles to maintain production. To increase its chances of survival, it sold in November its budget handset brand Honor, which is now becoming a rival. 

Details: Huawei is expected to ship 45 million smartphones in 2021, ranking seventh among global vendors, according to a Trendforce report published Tuesday. Huawei shipped 170 million units in 2020, ranking third globally, according to the report.

• The changes in Huawei’s smartphone sales owe both to the US export restrictions and the Honor spin-off, according to Trendforce.
• Honor will become a direct competitor, thus making it harder for Huawei to regain market share for smartphones, the report said.
• Samsung will remain the world’s largest smartphone vendor and Apple will retain the second slot, said the report. Chinese company Xiaomi, which ranked fourth in 2020, will become the third-largest smartphone vendor in 2021. 
• Global smartphone shipments dropped 11% year on year in 2020 to 1.25 billion units, Trendforce said. The number is expected to increase by 9% to 1.36 billion this year.

Context: Huawei was briefly ranked the world’s largest smartphone vendor in the second quarter of 2020, according to market research firm IDC. The company’s smartphone shipments then plunged 22% in the three months ended September to 51.9 million units, causing it to fall to second place on the top smartphone vendor list for the quarter.

• Huawei has also lost access to popular Google services and apps including YouTube and Gmail because of a US trade ban in May 2019, making its handsets less appealing to overseas consumers.

The US is planning to add dozens of Chinese companies, including the country’s biggest chipmaker, SMIC, to the same trade blacklist that has cut off telecommunications equipment giant Huawei from American technology and components, Reuters reported Friday.

Details: The US is expected to add around 80 new companies to the so-called entity list, nearly all of them Chinese, according to Reuters, citing two people familiar with the matter. American firms are barred from exporting technology and key components to companies on the blacklist without government approval.

• China’s biggest chip manufacturer, Shanghai-based Semiconductors Manufacturing International Corp., and some of its affiliates are expected to be included in the entity list designation, it said.
• The blacklisting would force SMIC to seek a special license from the US Commerce Department before buying key goods from American suppliers.
• Such restrictions could potentially curb SMIC’s ability to source US-made chip-designing software, raw material, and machinery needed for the company’s semiconductor production.

Go deeper: Exclusive-U.S. to blacklist dozens of Chinese firms including SMIC, sources say – Reuters

Based on ten interviews with industry insiders and regulators, TechNode tells the story of how Huawei established itself in the Greek market—and how the tables have turned for the Chinese telco giant. This is the first part of a three-part series.

In 2011, the Greek government was just embarking on what would turn out to be a years-long journey of bankruptcy avoidance with a cost of harsh austerity. Social welfare cuts, increased taxes and drastic public sector reforms sent unemployment and inflation soaring—and Greeks took to the streets en masse. 

Thousands of people were being laid off. Many businesses didn’t know if they would make it to the end of the year. The Greek government was so cash-strapped that it had to be bailed out by international credit institutions.

During this chaos, a small telco operator decided to upgrade its network (in Greek) to 4G. Wind Hellas wanted to spend three years rebuilding infrastructure that previously took 18 years to complete. 

Wind Hellas had a secret weapon: a relatively unknown Chinese company called Huawei. While the country was in deep trouble, Huawei helped Wind Hellas build a brand-new network. 

By 2014, the pair had built a 4G network that they claimed was the country’s fastest.

Today, Wind Hellas is Greece’s only surviving network operator that isn’t affiliated with a European telco conglomerate, and its relationship with Huawei runs so deep that its experience of other vendors is virtually non-existent. 

“We cannot compare with other suppliers, but from what we know, [Huawei’s] performance is on par with them,” Nikos Panopoulos, chief network and supply chain manager at Wind Hellas told TechNode. 

The telco wars

To China, Huawei is a national champion, proof that the Chinese model can birth global tech leaders. To the US, it is a Trojan horse, Chinese interests and state capitalism masquerading as a run-of-the-mill tech firm. 

But to Greece’s three telco operators, including Wind Hellas, Huawei—or “Hua,” as Greek telecoms professionals call it—has been a reliable partner for 10 years. It is a trusted supplier with a proven track record. 

Huawei equipment is everywhere in Greece. Although it has not been used in Greece’s core network, Huawei equipment makes up more than half of Greece’s 4G radio access network (RAN), the grid of cell towers that speak directly to cellphones. Wind Hellas built its RAN system almost entirely with Huawei equipment. 

RAN is the infrastructure that connects the end-user with the core network. If you’re sending an email, the first thing your phone does is to connect to the network using RAN. The EU considers RAN “highly sensitive” but not “critical” to network security.

It’s not just telecoms. The warehouses of IT providers in the country are full of Huawei products, ready to be integrated into server centers around the country. The Shenzhen-based company is so deeply entrenched in the systems of a US ally that it is all but impossible to imagine the country rejecting it.

With its most important military ally on one side and a vital trading partner on the other, Greece faces a dilemma that’s become common in 2020. 

We’re going to spend the next few weeks exploring what the fight over Huawei looks like when you’re caught in the middle, using Greece as our case study. Greece’s story is unique (as we’ll see next week, it includes the suspicious death of a Vodafone employee possibly involving a US security agency), but it exemplifies the conflicts US allies face as Washington tries to drop a Silicon Curtain.

For the past two years, US diplomats around the world have implored allies not to use Huawei gear in their 5G networks. The company is “an arm of the Chinese Communist Party’s surveillance state,” said US Secretary of State Mike Pompeo in an official press release. He has called on countries to form a coalition and “push back” against China. 

Some of the US’s closest allies have decided to exclude Huawei from 5G buildouts: Australia, New Zealand, Sweden, the UK, and, reportedly, France. The rest of Europe has so far resisted  singling out Huawei for a complete ban. 

Even three countries that signed 5G security agreements early on with the US—Estonia, Poland, and Romania—are trying to find ways to increase security without singling out Huawei.

Many European countries are still undecided: Austria, Finland, Luxembourg, the Netherlands, Norway, Portugal, and Spain. Some, like Switzerland and Hungary, have committed to buy from Huawei.

Huawei’s journey to the west

In the early 2000s, Ericsson and Nokia were the world’s biggest telecoms vendors, and China was still considered a developing country by the World Trade Organization. From 2000-2005, only about one in five people in China had either a mobile phone or a landline, according to data from the International Telecommunication Union. 

Huawei was a budget alternative at best. It started to explore business in Africa in 1998 and set off on its international expansion around 2000, Antonia Petrovits, a spokesperson for Huawei Greece, told TechNode. 

Telecoms equipment manufacturer Cisco was the first US entity to take aim at Huawei in 2003, alleging that the then-upstart had infringed on five Cisco patents. But Washington had yet to come up with an aggressive and comprehensive policy centered around a national security argument, which is what we see today. 

Low key

Huawei’s Athens office doesn’t have a big sign. The company doesn’t even list the address on their website. Unless you are invited, the only way to find out where they are is by accident (as TechNode did).

It’s a far cry from Huawei’s grandiose Shenzhen headquarters. A simple four-floor building houses a women’s health clinic, and the national headquarters of Huawei and Media Markt, a nationwide electronics retailer. 

But its strategic location more than makes up for its modest appearance. It is a stone’s throw away from the headquarters of Greece’s telco providers. 

The Chinese telco giant approached Europe via the Middle East, Paul Scanlan, head of Huawei’s Carrier Group, told TechNode. They wanted to build a good brand and understand the region better before dealing with more “mature customers,” he said. 

When Huawei opened its offices in Athens in 2005, it was a China-focused company with a few branches in developing countries. The same year it inaugurated its offices in Greece, it opened an office in Kenya.

Greece appeals to Chinese companies as a “landing point” for Europe. As a member of the European Union, it follows EU rules and is an entry point into Europe’s southern and eastern blocs, Andreas Polycarpou, who worked in Athens as an executive consultant for strategy and innovation at ZTE for six years, told TechNode. 

Good products, great service

At first, Huawei undercut competition with lower prices and aggressive marketing tactics. One person with direct knowledge of the procurement process said Huawei would directly compare technical specifications and pricing with competitors’ at sales meetings.

The company’s ownership structure allowed it to keep prices low while charging into new markets, like Greece. As a privately owned company, it can afford to be patient about turning profits.

“If their prices are lower, it’s not necessarily because they’re being heavily subsidized by the Chinese government. It’s because they don’t have to answer on their margins for shareholders,” Paul Triolo, practice head of geotechnology at advisory firm Eurasia Group, told TechNode. 

Greek telcos OTE and Wind Hellas first bought Huawei equipment eight years ago, OTE’s Director of Strategic Planning Pavlos Vihos and Wind Hellas’s Head of Communications George Tsaprounis told TechNode in separate interviews. 

Over time, Huawei’s products got better and its prices increased. But their relationships with local telcos had been established, and their equipment earned a reputation as reliable.

Industry insiders in Greece said Huawei’s equipment is excellent. Some even said that it is superior to Nokia and Ericsson equivalents, Huawei’s only real competitors. 

But Huawei’s success in the Greek market goes beyond technicalities. It is largely attributable to a knack for localizing to the market and providing technical support. “Localization has always been our strategy,” Petrovits said, adding that the company “combines the best of the Chinese and international approach.”

At first, “communication was very difficult,” but Huawei developed a very good team of Greek employees and, over time, they managed to make the partnership work, Wind Hellas’s Panopoulos said.

Today, out of Huawei’s 120 employees in Greece, 70% are locals, Kostas Vasiliiou, wireless solution sales manager at Huawei Greece, told TechNode. Half of the 120 are technical staff, he said.

Huawei earned its place in Europe by delivering what was most important to the Greek market: world-class equipment at irresistible prices, and support throughout the products’ life cycle.

The Huawei secret sauce

Huawei’s commitment to localization allowed it to distinguish itself from other low-cost suppliers. As fellow Shenzhen equipment maker ZTE learned the hard way, this was key to winning over new markets like Greece. 

ZTE entered the market in 2002 with a big sale of ADSL equipment—a type of broadband—to network provider OTE, Polycarpou said.  

But ZTE never managed to form relationships with Greek telcos the way Huawei did. Huawei was able to convince Greek telcos that it would provide dedicated support. ZTE wasn’t.

“When you buy telecoms equipment, you don’t buy it for a year. You buy it for decades. You need to convince the buyer that you will be there to support them,” Polycarpou said. 

Huawei had a technical service team tailored to the market from the moment it set foot in Greece. While ZTE improved its localization efforts from 2011 to 2017 and gained some market share, Huawei quickly rolled out new products to counter ZTE’s success. 

ZTE’s technical staff currently numbers two people. They can’t compete with Huawei’s “army” of 60 technical service specialists.

 “When they [Huawei] installed the IMS systems [IP Multimedia Core Network Subsystem], they brought armies of engineers with them,” Andreas Rigas, Senior Manager of strategy and development at OTE, told TechNode. 

ZTE also did not navigate the local business landscape well, sometimes trying to sell products by talking to the wrong people, Polycarpou said. 

“When the manager changes, he doesn’t listen to the locals’ advice. He wants to go meet a minister. But in Greece, the minister has nothing to do with sales of telco equipment,” he said. 

ZTE never gained traction in Greece. Today, Huawei is cozily nestled in the country’s RAN system, while ZTE mainly sells peripheral network products, such as routers. 

Seizing the moment

When the financial crisis spiraled into strict capital controls in 2015, the stars aligned for Huawei. Domestic politics, monetary controls, and other vendors’ finances came together for Huawei to embed itself deeper in Greece’s networks. 

Since 2010, the Greek government had been agreeing to difficult austerity measures in exchange for bailouts from international creditors, chiefly the European Central Bank and International Monetary Fund. Foreign direct investment, including from US companies, dried up. 

Washington itself sat out the Greek crisis, leaving the fate of its close ally to the hands of its creditors—other than the occasional diplomatic assurance.

Frustrated by austerity and “capitulating” governments, in 2015, the Greek people elected a “radical left” government which promised to stand up to its European creditors. 

Shortly after the election, a dramatic sequence of events led to the implementation of  capital controls to avoid a run on the banks and the catastrophic collapse of the financial system. 

Transfers of money overseas were banned, unless with explicit permission from financial authorities. Cash withdrawals were limited to €60 per day. Greeks spent their summer of 2015 waiting in long ATM lines around the country. 

Huawei seized the moment. 

When capital controls were introduced, European and US companies stopped most shipments to Greece. Many would only sell if they were paid in advance. With public and private debt reaching unprecedented levels in Greece, advance payments were basically impossible.

Chinese companies like Huawei and ZTE had more cash on hand, and a willingness to bet on the Greek economy—or the country’s geopolitical position. They turned a blind eye to the capital controls by offering generous terms.

These companies let Greek buyers have equipment on credit, accepting deferred payments of up to 15 months.

Such agreements were commonplace during the crisis across industries, an unspoken secret in Greek business. In the case of telco equipment, they boosted the Chinese vendors’ position in Greece’s systems. 

The Greek government could barely pay its healthcare suppliers. But Huawei and ZTE’s support allowed Greek telcos to continue investing in their networks. 

While Greek telcos were basically unable to buy from Western suppliers, their customers enjoyed substantial improvements in service

Between 2015 and 2018, the last year for which the EU Commission has released relevant data, one-third of Greek households gained access to very high-speed digital subscriber lines (VDSL). In the same time period, coverage of Long Term Network Evolution networks (LTE) increased by 20 percentage points. LTE is the technology that supports 4G connectivity. 

In the context of the crisis, these facts are astounding. As Huawei equipment was being used to build up capacity during the capital controls era, about 22% of people in Greece were unemployed, 35% of the population was at risk of poverty and annual GDP growth averaged a meager 0.7%.

Huawei was pivotal in achieving these gains in connectivity. It is unlikely that telcos would have updated their networks so drastically in the midst of a financial crisis without an equipment vendor that was willing to make concessions in payment schedules—Huawei.

The Greek sector took note: when Western firms fled, the Chinese stayed. They “stood by the market,” an industry insider said. 

As Huawei ties with Greek telcos were growing tighter, Washington damaged its credibility when it was caught red-handed spying on Greek telecoms networks. 

By 2018, when the US began lobbying long-standing allies around the world about the security risks of Huawei products, Huawei equipment was thoroughly embedded in Greek networks. Meanwhile, European leaders in Brussels were finally waking up to the importance of telecoms security. 

But in more than a decade in the market, Huawei had already made good friends in Greece. When the Huawei debate started, Greek decision makers had years of experience—and trust—with the company.

Part II of this series will explore how the US campaign against Huawei—and its own espionage activities—have affected EU policy.

About a year after China launched its first public 5G networks, it held a major telecommunications event in the southern city of Guangzhou on Nov. 26-27. The second annual World 5G Convention (W5GC) attracted top executives from the country’s three state-owned carriers (China Mobile, China Telecom, and China Unicom) and high-level officials from telecom regulators to the event. 

Representatives of several overseas carriers including Spain’s Telefonica, Singapore’s Singtel, Deutsche Telekom, and America’s AT&T also attended by video link. But W5GC was more China than world: the agenda centered on China’s deployment and applications of next-generation 5G networks, while almost all foreign speakers were allocated to a “global forum.”

Not all information from the world-level conference was new, but the message delivered by officials is important: China is counting for future economic growth on a series of cutting-edge technologies enabled by ultra-fast 5G networks, which includes electric vehicles, artificial intelligence, and big data. In the short term, 5G is seen as a remedy for the country’s virus-hit economy.

Bottom line: 

• 5G cellular service is already widely available in China—if you live in a city, you should be able to use it. But networks are far from complete, and China expects to spend hundreds of billions on base stations in the coming year.
• But 5G still isn’t essential. We haven’t seen a “killer app.” Authorities still talk about it as a future technology rather than something paying off now.
• Compared to last year’s W5GC (held in Beijing), this year focused more on the domestic market, whereas last year China tried to export its approach to 5G to the world.

Widely available:

• Liu Liehong, deputy minister of China’s Ministry of Industry and Information Technology (MIIT), said China has built more than 700,000 base stations with more than 180 million 5G subscribers as of October.
• Dong Xin, chief executive officer of China Mobile, said the world’s largest telecom carrier by subscribers had built 385,000 base stations with more than 90 million 5G end users. He said the company had provided 5G service in all Chinese prefecture-level cities.
• Wang Xiaochu, president of China Unicom, said the company is now providing standalone 5G service in more than 300 cities, meaning that its 5G network does not rely on older 4G infrastructure.

Growth forecast:

• Feng Yi, director at China Unicom’s 5G Innovation Center, said China’s 5G users could grow by 20% in the next year.
• John Hoffman, CEO of GSMA, a telecoms industry body, predicted that around 20% of global telecom users will choose 5G services by 2025, with the penetration rate reaching 50% in countries like the US, Japan, and South Korea. “China will be the world’s biggest 5G market in terms of subscribers, though its penetration rate will only be 30% by 2025.”

Message from Europe: After a year in which Huawei has lost ground in Europe, Nicolas Chapuis, European ambassador to China, argued that the bloc assesses vendors neutrally: 

“In Europe, operators and suppliers are also ready to proceed, frequencies have been allocated, but governments and security agencies want to first make sure that the impact of this new technology on industry and services is well managed and regulated. Suppliers, be they European as well as non European, have been required to prove their compliance with a set of rules, known as the EU 5G tool box. Chinese companies have welcomed this framework, which is based on a solid, thorough, transparent and objective assessment of risks and applies to all players.”

Nicolas Chapuis, European ambassador to China

READ MORE: INSIGHTS | More European countries are turning their backs on Huawei

5G spending push to continue: In June 2019, China issued 5G licenses to its three major carriers and a broadcasting company, with commercial use of the service starting last November. Though China launched the service later than countries like the US and South Korea, the country is now—according to officials speaking at this week’s event—is “taking a lead” globally in the deployment of 5G networks.

• The buildout of the country’s 5G networks is largely backed by the state. China in April kicked off a “new infrastructure” initiative, promising to spend RMB 1 trillion (around $152 billion) on seven cutting-edge technologies including 5G, artificial intelligence, and electric vehicles in 2020 alone. China Sinolink Securities, a broker, expects total investment by local governments and telecom companies into base stations to reach RMB 300 billion this year.
• The Chinese government is calling for a quick rollout of the next-generation wireless network, which prompted China Telecom and China Unicom, the smaller rivals of China Mobile, to jointly build a next-generation network. On Thursday, Wang of China Unicom said the company saved RMB 60 billion “for the state” from the partnership with China Telecom.
• Most 5G base station buildout contracts have gone to China Tower, a state-owned telecommunications tower infrastructure service provider. Tong Jilu, chairman of China Tower, said Thursday that the company had constructed more than 700,000 5G base stations for local carriers. He said 97% of those stations were built on existing 4G stations. 

5G as stimulus: Speakers tied the protocol to hopes for growth from the “digital economy.” China’s economy could have taken a much deeper hit this year without the “digital economy,” according to a former government official.

• “2020 is a year of troubles. Under this circumstance, people all looked at the digital world for economic growth,” said Li Ming, executive director of the China Institute of Digital Economy Research. “5G will be a growth engine of the digital economy,” he said.
• Xu Xianchun, director at the Tsinghua University’s China Data Center, said China’s digital economy grew 13.2% year on year in the first quarter while the country’s gross domestic product (GDP) was down 6.8% in the same period because of the Covid-19 outbreak.
• Xu, who is also the former deputy director of the National Bureau of Statistics of China, said the country’s GDP could be down more than 8% in the first quarter if the digital economy shrank as well, highlighting the importance of the sector in China’s economy.

A subdued Huawei? You can’t talk about 5G in China without talking about Huawei. But Huawei was relatively inconspicuous at this year’s W5GC. Last year, one Huawei executive appealed (in Chinese) called for the digital “Berlin Wall” to come down, and the company’s then rotating chairman vowed to build “the world’s best 5G.” This year, attendees from the company focused on products and devices.

Internal circulation: Things have changed a lot between the two W5GCs. Last year’s conference featured a session (in Chinese) that aimed at promoting China’s participation in global 5G standards; this year’s “world” conference overwhelmingly focused on developments in China. Of course, closed borders and a pandemic make international events much harder, but the changes also reflect the change in economic strategy known as “dual circulation,” which calls for the country to rely less on international markets. If China was still hoping to shape the 5G conversation around the world when it launched the conference last year, this November’s event suggests a more modest focus on the home market.

UPDATE: The quote from EU Ambassador Nicolas Chapuis has been updated based on a text provided by the EU Delegation to China. An earlier version of this article relied on a translation printed in Chinese media reports.

Huawei founder Ren Zhengfei announced on Wednesday a reorganization that granted the head of its consumer business group oversight over its car business operations as the company moves to shore up promising new revenue streams.

Why it matters: Huawei is sharpening its focus to its budding connected car business following US sanctions which have strangled the company’s smartphone unit by clamping down on its access to chipsets.

• Huawei’s revenue growth rate declined to 9.9% year on year in the first nine months of the year from 18% in 2019, which the company said “basically met expectations.”
• Its global smartphone shipments fell 23% year on year in the third quarter, market research firm Canalys said in a recent report.
• Shenzhen-based Huawei last week announced it was selling its budget smartphone brand Honor to a consortium including major partners and the local government, which could make Honor no longer a subject to US sanctions.

Details: Huawei’s Intelligent Automotive Solution business unit was moved under the consumer business managing board, currently led by the group’s CEO Richard Yu, according to an announcement (in Chinese) dated Oct. 26 and posted to its online community on Wednesday.

• Yu will also lead the investment decision-making on the company’s intelligent automotive parts-related business in addition to its consumer device unit, Ren said, adding that the company aims to create more synergies between the two.
• Ren reaffirmed its strategy in the announcement that it has no intention to build cars, but to become a parts and solution provider for the growing segment of intelligent and connected vehicles.
• A Huawei spokesperson told TechNode on Friday that the move does not reflect a change in the company’s focus on smartphones. “It’s a normal business restructuring and has nothing to do with business priority change or US sanctions,” he added.

Context: Huawei in May 2019 placed its auto business unit under its information and communication technology (ICT) infrastructure managing board which mainly oversees its carrier and enterprise businesses and is led by rotating chairman Eric Xu.

• The Chinese telecommunications giant has invested heavily in the new potential revenue stream, spending more than $500 million during the first 10 months of this year. The unit had around 4,000 employees as of September, according to a Caixin report (in Chinese).
• The auto unit’s operations had been fragmented prior to the restructuring. On one hand, it develops car components and software solutions such as a power management system and charging solutions for electric cars, Caixin reported citing company employees.
• Meanwhile, the consumer group offers Hicar, a platform similar to Apple’s Car Play for connecting smart devices to vehicles, and the in-vehicle version of its Harmony operating system is jointly developed by the two teams, the sources said.

This article and its headline were revised Friday to include comment from Huawei.

Xiaomi reported on Tuesday better-than-expected revenue of RMB 72.2 billion (around $11 billion) for the third quarter, the fastest growth the Chinese smartphone maker has seen since its 2018 listing.

Why it matters: The strong performance shows how the Beijing-based company has benefited following US sanctions imposed on its archrival Huawei. Xiaomi’s global smartphone shipments grew 45% year on year to 47.1 million units in the third quarter while Huawei’s fell 23% year on year to 51.7 million units, according to market research firm Canalys.

• However, Xiaomi President Wang Xiang warned of a “supply chain shortage” in the fourth quarter during an earnings call late Tuesday. Wang did not provide further details but said the difficulty could last until next year.
• Unlike Huawei, which has been essentially cut off from the global semiconductor supply chain because of US sanctions, Xiaomi is free of geopolitical tensions. 

Details: Revenue for the world’s third-biggest smartphone vendor in the September quarter grew 34.5% year on year, said the company in a filing with the Hong Kong exchange Tuesday.

• More than half of Xiaomi’s third-quarter revenue came from overseas markets, which grew 52.1% year on year to RMB 39.8 billion, the company said. Its smartphone shipments in Europe grew 90.7% year on year in the same period, seizing an 18.7% market share, said the company, citing Canalys data.
• Xiaomi’s adjusted net income for the quarter grew 18.9% year on year to RMB 4.1 billion, according to the unaudited results. Shares of the company more than doubled this year.

Context: Xiaomi beat Apple to rank the world’s third-largest smartphone vendor in the third quarter behind South Korea’s Samsung and Huawei, according to Canalys.

• The company is also expected to benefit from the sale of Honor, Huawei’s budget phone brand, just last week. Analysts suggested that the company could gain around 15 million units in additional smartphone shipments because of Honor’s exit.
• Xiaomi’s Wang said during the Tuesday earnings call that the company has no plans to change its market strategy because of the Honor sale. “We were also informed by the media that Huawei sold Honor. Anyway, our strategy is unchanged and I don’t see the necessity to change it,” he said.

Huawei is selling its budget smartphone unit Honor, the company said Tuesday, to a consortium that is majority-owned by the local Shenzhen government in a deal to keep the brand alive.

Why it matters: The sale is a direct consequence of US technology export restrictions imposed on the Shenzhen-based company over the past year and a half. The world’s second-largest smartphone maker has lost access to most high-end semiconductors as well as Google apps and services on the Android operating system crucial to its handset offerings.

• The Honor brand buyer is majority held by the Shenzhen government. Huawei has been trying to shake off its connections with the Chinese state.
• A change of ownership may help Honor regain access to semiconductors it needs. However, the company’s premium Huawei smartphone brand—more dependent on sourcing advanced chips—is still subject to US restrictions. 

Details: Newly founded Shenzhen Zhixin New Information Technology will acquire all of the business assets of the Honor brand, according to a joint statement published in a local newspaper on Tuesday.

• Shenzhen Zhixin New Information Technology is 98.6% owned by a company that is wholly owned by the State-owned Assets Supervision and Administration Commission (SASAC) of the municipal government in the southern Chinese city of Shenzhen, according to Chinese corporate information platform Tianyancha.
• A limited partner holds the remaining 1.4% of the company, which is 62.34% held by an investment firm owned by the Shenzhen SASAC and the Finance Commission of Shenzhen Municipality.
• Huawei said in its statement that more than 30 Honor agents and dealers, including retail giant Suning.com, co-founded Shenzhen Zhixin New Information Technology along with the majority owner. However, there was no public record of such entities holding stakes in the new Honor owner.
• A Huawei spokesperson declined to comment when contacted by TechNode on Tuesday.
• Huawei said in a statement Tuesday that its consumer business had been under “tremendous pressure” because of “a persistent unavailability of technical elements needed for our mobile phone business.” The US government previously imposed license requirements on global semiconductor foundries and vendors that ship to Huawei products which contain US technology.
• “This sale will help Honor’s channel sellers and suppliers make it through this difficult time,” Huawei said.
• The statement did not disclose details of the deal. Reuters previously reported that it might be an all-cash sale worth between RMB 15 billion (around $2.2 billion) and RMB 25 billion.

Context: Honor is a budget smartphone brand that Huawei established in 2013. It completes with other budget brands such as Xiaomi and Oppo while the Huawei brand sells to the high-end handset market. 

• The Honor brand now sells more than 70 million units annually, Huawei said.

China’s Huawei is falling behind in the race to supply telecommunications equipment for 5G networks in Europe, its largest market outside of its home turf.

As Sweden decided in October to exclude Huawei from its next-generation mobile networks, seven out of 27 European Union member states have made moves to heavily restrict the Shenzhen company’s participation in the buildout of 5G. The list includes heavyweights like France and the UK. 

Among countries that have not made decisions on Huawei, six have signed a declaration of intent to keep their networks “clean” of Chinese technology under the US “Clean Network” initiative. Signing the Clean Network initiative does not appear to bind countries to bar Huawei gear. 

While regulators are driving the shift against Huawei, telcos are jumping the gun. In another five countries, telco operators have signed contracts to procure 5G equipment from Huawei’s competitors, Nokia and Ericsson, likely anticipating regulation.

Experts say that the Shenzhen-based company may eventually face de facto expulsion from Europe’s 5G networks as countries move to make their final decisions.

Huawei supplied around 50% of the equipment for Europe’s 4G networks, according to a 2017 report by the European Trade Union Institute, an EU-backed research center. However, the company now faces a much less welcoming environment for 5G—at least two countries have banned its gear outright, and a dozen others are considering heavy restrictions.

“Chinese vendors will play a minuscule role in parts of Europe’s mobile networks that are considered sensitive or critical,” Jan-Peter Kleinhans, director of the project Geopolitics & Technology at German think tank Stiftung Neue Verantwortung told TechNode. 

Kleinhans said that he could imagine a full exclusion of Huawei equipment from Europe’s 5G core networks “in the long run.” 

“Since the European Union put the onus on member states to objectively assess risks and adopt mitigating measures to ensure the security of 5G rollouts, most countries have increased their scrutiny of Huawei,” Jan Stryjak, associate director at market research firm Counterpoint, told TechNode. “Since no country would want to be alone in bucking the trend, solidarity seems to be the name of the game.”

European countries so far haven’t banned Huawei from all of their 5G core networks, a Huawei spokesperson told TechNode on Friday. “Huawei calls and pushes for the establishment of network security standards, and hopes all vendors to be subject to the same scrutiny.”

The company said its commitment towards the European market is “unchanged.”

The EU toolbox

The first step towards an EU-wide policy on 5G security came in January, when the EU Commission released the so-called EU 5G toolbox: A blueprint for how the 27 member states should evaluate 5G gear provider risks and trustworthiness. 

The toolbox requires member states to assess supplier risk profiles on a national or EU level and apply restrictions on those deemed high-risk. 

“The EU toolbox recommends a set of key measures that should be taken by all member states and by the Commission. These measures will apply to everybody, without targeting any actor or country in particular,” Marietta Grammenou, a European Commission spokesperson, told TechNode in an email. 

The toolbox does not mention Huawei or China by name, but instructs national regulators to consider the “risk of interference by non-EU state or state-backed actors,” echoing US rhetoric. 

Some countries have taken a middle-of-the-road approach: They have chosen to raise security requirements for all vendors in a way that amounts to a ban on Huawei without naming it.

The EU toolbox was rolled out after the US government embarked on a campaign to pressure allies into excluding Huawei equipment from their 5G networks, and marked a sharp shift from earlier guidance in EU security directives, where country of origin did not feature prominently as a concern. 

Scholars have said that Huawei is owned and controlled by the Chinese state but the company maintains that it is a private company 100% owned by its employees.

The toolbox leaves the decision to ban Huawei up to member states: “While everyone who complies with our rules can access the European market, member states have the right to decide whether to exclude companies from their markets for national security reasons,” Grammenou said.

“Since mobile networks are considered a critical infrastructure with a direct impact on national security, member states are free to develop their own strategy and thus balance between costs and security,” Kleinhans said.

As countries set their own paths, a likely result is “a highly fragmented regulatory landscape,” Kleinhans said.

Security concerns

As more regulators and telecommunication operators put limits on Huawei, it’s getting more tempting to jump on the bandwagon. Europe’s military and intelligence community, meanwhile, has been voicing objections to Huawei gear, citing national security concerns.

“With no country wanting to be the odd one out, it wouldn’t be surprising if all member states follow the same trend,” Stryjak said.

While only two countries have specifically banned Huawei from future network buildouts, lawmakers and politicians are signaling that other European countries will likely follow their example or heavily restrict the company’s involvement. 

In July, the UK banned Huawei from its 5G networks and ordered its telecommunication operators to remove existing Huawei gear from their networks by 2027, citing a US ban on the company in May that could cut the company off from the global semiconductor supply chain. 

In a similar move, a Swedish telecom regulator said in October that potential grantees of the country’s 5G spectrum must not use products from Huawei in new core networks and existing Huawei gear must be phased out before 2025.

Sweden’s Huawei decision was made based on assessments by the country’s Armed Forces and the Security Service, the Swedish Post and Telecom Authority (PTS) said. On the announcement of the Huawei ban, Klas Friberg, head of the Swedish Security Service, said “China is one of the biggest threats to Sweden.” The country, Friberg added, must not forget when constructing its 5G network that China “is conducting cyber espionage to promote its own economic development and develop its military capabilities.”

Europe’s biggest economies and political epicenters, including Germany and France, have also indicated that they are turning against Huawei.

In October 2019, Germany’s spy chief Bruno Kahl said Huawei “can’t fully be trusted” to participate in the country’s 5G network rollout. While German Chancellor Angela Merkel was in September reportedly vehemently opposed to any restrictions that would single out Huawei, she faced a contingent of politicians who sought to effectively ban Huawei from German 5G networks. Later in the month, they appeared to have won.

In July, Reuters reported that the French National Cybersecurity Authority (ANSSI) had granted licenses to some operators that use Huawei gear. But the bulk of the authorizations were for three or five years, whereas most applications for 5G kit from European rivals Ericsson or Nokia received eight-year licenses.

Notably, the ANSSI informed operators during informal conversations, not stated formally in documents, that licenses granted for Huawei equipment would not be renewed once expired, according to the report.

The Huawei issue has been a flash point in escalating tensions between China and the US. For more than a year, the US government has continued to pressure its allies to exclude Huawei equipment. Not doing so, it said, poses the potential risk of Beijing using vulnerabilities in the company’s gear to spy on foreign 5G networks, an allegation Huawei has repeatedly denied. 

A full ban on Huawei equipment would almost certainly be seen by Beijing as choosing sides, and fodder for retaliation. 

Most recently, a UK oversight body said in October that Huawei had failed to adequately solve security flaws including a “vulnerability of national significance” in gear used in the country’s telecom networks despite previous warnings. 

In April 2019, Vodafone told Bloomberg that it found “hidden backdoors” in the software that could have given Huawei unauthorized access to the carrier’s system providing internet service in Italy. The carrier said at the time that the issues had been resolved after it asked Huawei to remove them.

‘A matter of time’

Huawei has not disclosed how much revenue it earns from Europe. According to the company’s annual results, it generated RMB 206 billion (around $31.1 billion) from Europe, the Middle East, and Africa in 2019, or around 24% of its total revenue for the year.

Stryjak of Counterpoint said that there could still be a play for Huawei in the radio access network (RAN) market, the less sensitive area of 5G networks that connect end devices to core networks. However, he said, Huawei’s RAN business in the continent is still subject to the “suspicion that governments and operators now hold.”

“It seems only a matter of time before all of Europe’s core 5G networks are Huawei-free,” Stryjak said.

The telecommunications regulator in Sweden on Monday halted a spectrum auction after a court suspended “until further notice” parts of its decision that excluded Chinese telecommunications equipment maker Huawei from the country’s 5G networks, Reuters reported.

Why it matters: The court ruling granted Huawei some relief from widespread backlash in Europe. However, the Swedish Post and Telecom Authority’s (PTS) move to suspend the auction may signal future tension between Huawei and regulators.

• The Swedish authorities have said the country must consider the Chinese state’s cyber-espionage when building its 5G networks. For more than a year, the US government has campaigned against Huawei over fears that China could use Huawei to eavesdrop on communications running through telecommunication equipment it sells across the world. Huawei has repeatedly denied the allegations.

Details: PTS was set to hold spectrum auctions for the country’s 5G networks starting on Tuesday. The regulator halted the auctions on Monday after a court in Sweden ruled that carriers using Huawei equipment could participate, Reuters reported.

• In October, PTS said in a statement that potential spectrum grantees must not use products from Huawei and ZTE, another Chinese telecom equipment maker, in new central function installations. The government body also asked telecom companies to phase out existing infrastructure for central functions containing products from Huawei and ZTE before Jan. 1, 2025. Huawei appealed the decision last week.
• The Stockholm administrative court said that certain parts of the regulator’s October decision will not apply until further notice, according to Reuters. 
• Huawei has no plan for more legal action and is waiting to have “constructive dialogue” with Swedish authorities, Kenneth Fredriksen, Huawei’s executive vice president for the region told Reuters.
• PTS said it would review the possibility of starting the auctions, which would allocate frequencies in the 3.5 GHz and 2.3 GHz bands needed for 5G communication, as soon as possible.

2020 has been a tough year for China tech companies selling to overseas markets. In India, local authorities banned 177 Chinese apps in June and September following border clashes between the two countries. In the US, the Trump administration launched an effort to ban short video app Tiktok and instant-messaging app Wechat, which are among the most successful Chinese apps in international markets. 

Even in Europe, Chinese telecommunications equipment maker Huawei is facing increasing restrictions on supplying gear for next-generation 5G networks.

It forces us to wonder if the world is still open to China tech. It’s a question that’s fundamental to what we do here at TechNode—so we made it the headline question at our Emerge 2020 conference last Thursday.

Bottom line: Going overseas has always been tough, and in this political climate, it’s even tougher. But politics isn’t everything. Speakers said it’s still possible for some Chinese tech firms to succeed in the right overseas markets. Others face long-standing market barriers that predate current tensions.

Compliance and building trust: Many firms trying to enter developed markets have a more basic problem than bans, speakers said: consumers there just don’t trust them.

“The challenge for entrepreneurs going across the border is actually trying to understand what you can do and what you cannot do,” said William Bao Bean, general partner at investment firm SOSV.

Bean said a lack of regard for privacy has earned many Chinese tech companies a bad reputation in markets like Europe and the US. “You have to adapt to the local market. You have to follow the local law. And half the time, people don’t even know that they’re breaking the law when they go across the border.”

Chinese companies have been successful in exporting hardware to overseas markets, said Kiran Patel, senior director at China-Britain Business Council, during the discussion. Patel said he is “more positive” about the future of Chinese hardware than software in the British market because hardware companies usually don’t need to deal with a huge amount of personal data.

Trust is more important when exporting software that holds personal data, Patel said.

“That is the challenge that companies like Tiktok and Wechat have to meet when moving into a new market,” Patel said. “The first challenge that must be overcome is building trust.”

China, security champion? Privacy and security have always been weaknesses for China tech. But at a workshop at the conference, we heard that this truism could be changing as China moves to enforce new laws on privacy and cybersecurity. Carly Ramsey, director at risk consultancy Control Risks, told the audience that China has written one of the world’s most extensive set of requirements to protect data, and is now moving to enforce it. These don’t resolve international concerns about surveillance—but they could help clean up China’s “idiots with a database” problems.

Disrupting barriers: Embracing disruptive technology can be a path for getting around traditional tech barriers, speakers said. The most optimistic attendees about internationalism, by far, were the blockchain-watchers. 

Asked about political barriers, Matthew Graham, founder of Sino Global Capital, a venture capital firm focusing on blockchain companies, said that the US cannot stop China in the world of blockchain the way it has hobbled Huawei on semiconductors. 

“Most of blockchain is open source. It’s not really possible to throw a bottleneck in that way,” said Graham.

As the nascent technology matures, said Michael Sung, co-director of the Fanhai Fintech Research Center at Fudan University, China is emerging as a leader in standards-setting. State-affiliated projects like the Blockchain Services Network (BSN) are creating ecosystems that attract international players.

But Sung, and Harriet Cao of Bianjie, a blockchain startup, rejected a US vs. China framing for blockchain. Instead, they said, it’s a trans-boundary technology that can mitigate mistrust.

“Blockchain is a little bit of a different beast. It’s not about choosing to use Huawei equipment or not,” said Sung. “Blockchain is about multi-party coordination, having stakeholders being able to coordinate in a trusted and secure way, where trust doesn’t exist between the parties beforehand.”

They’re just not that into your EVs: China is home to some of the world’s most exciting electric vehicle (EV) makers, such as Nio, BYD, and Xpeng. But they’ve yet to get traction with Europe’s millions of prosperous, environmentally-conscious consumers. Marketing is a major reason, said Tu Le, founder and managing director of business intelligence firm Sino Auto Insights.

“Some Chinese companies have started to sell EVs into the EU. That could be a question because they haven’t really solidified positioning in their home market,” said Le. “Europe, like Southeast Asia, is very diverse, and therefore a marketing strategy in Germany might not work in France and Italy. That level of complexity for entering an international market is a lot to chew on for Chinese EV makers.”

“The complexity ramps up significantly for them. And that could be a drain on their capital,” he said, adding that Chinese EV makers should focus on individual markets as opposed to looking at Europe as one big market.

Go southeast: The right answer for many companies with global ambitions is to look for markets that are more like China than Germany or the US. We’ve long seen that most Chinese companies do best in markets that have more in common with China a few years ago—large rural populations, first-generation mobile users, or leapfrog growth.

Chinese tech companies should focus on Southeast Asia in expansion plans, said Bean of SOSV. In addition to friendlier regulations than Europe or India, he said, it’s a good market fit.

“Southeast Asia has a lot of the same challenges, problems, or opportunities that China had 10 years ago. It’s a mobile-first market. So people’s first or only experience with the internet is on a smartphone, which is very similar to China,” he said.

All we are saying is give tech a chance: Chinese companies have their share of problems. But at times they also make good-faith efforts to mitigate concerns. Huawei offered to sign “no-spy deals” with countries and set up a cybersecurity transparency center in Brussels and now is facing spreading bans from Western countries’ core 5G networks. Tiktok vowed to localize user data in the US and appointed a blue-ribbon panel of privacy experts—and was rewarded with an app ban. 

Of course, the election in the United States is going to have a big impact on China tech. If US-China relations keep getting worse, tech will be affected. Maybe we’re biased, but at TechNode we don’t think this is a great thing for anyone. 

With contributions from David Cohen.

The world is still open to Chinese tech despite a global backlash in recent years, experts at the TechNode Emerge 2020 conference said Thursday, but firms must adapt to the changing geopolitical environment when expanding overseas.

2020 has been a tough year for Chinese tech companies selling to overseas markets. In India, local authorities banned a total of 177 Chinese apps in June and September following border clashes between the two countries. In the US, the Trump administration announced impending bans on short video app Tiktok and instant-messaging app Wechat, which are among the most successful Chinese apps in international markets. Chinese telecommunications equipment maker Huawei is facing increasing restrictions on supplying gear for Western countries’ next-generation 5G networks.

Beyond geopolitical tensions, Chinese tech companies expanding overseas also face obstacles in the form of privacy regulations, marketing, and localization, William Bao Bean, general partner at investment firm SOSV, said during the opening panel at the Shanghai event.

“The challenge for entrepreneurs going across the border is actually trying to understand what you can do and what you cannot do,” Bean said. 

The lack of regard for privacy has led to some of the problems Chinese tech companies face in markets like Europe and the US because of stricter local regulations on data security, Bean explained.

“You have to adapt to the local market. You have to follow the local law. And half the time, people [startups] don’t even know that they’re breaking the law when they go across the border,” he said.

Chinese companies have been successful in exporting hardware to overseas markets, but there are trust considerations when they are exporting software that holds personal data, Kiran Patel, senior director at China-Britain Business Council, said during the discussion.

“That is the challenge that companies like Tiktok and Wechat have to meet when moving into a new market,” Patel said. “The first challenge that must be overcome is building trust.”

Chinese venture capital (VC) funds may find it difficult to raise money from US pension funds, said Bean. But he believes that the hurdles faced by VCs are not affecting Chinese startups. “That’s a money problem, not a startup problem,” he said.

“China has got the number-two largest VC industry in the world in terms of the amount of funds put in startups and it’s actually easier for Chinese companies to raise money from China,” he said.

Bean said that Chinese tech companies should see Southeast Asia as their next destination in their global expansion plans to avoid regulatory uncertainties in Europe and India.

“Southeast Asia has a lot of the same challenges, problems, or opportunities that China had 10 years ago. It’s a mobile-first market. So people’s first or only experience with the internet is on a smartphone, which is very similar to China,” he said.

Bean said he couldn’t be sure whether or not there will be more Chinese tech companies facing global regulatory backlash like Huawei and Tiktok, but he is optimistic that this would not stop Chinese startups from going overseas.

“Innovation usually finds its away,” he said. “It’s like water. It’s always just going to find a crack.”

China’s Cyberspace Administration has cracked down on eight mobile browsers, ordering them to stamp out clickbait and misinformation.

Why it matters: By targeting the largest platforms, the authorities are sending out a signal to other smaller browsers that they may be next in line. Platforms that do not change their practices likely face suspensions or bans. 

Details: The order affects Alibaba-backed UC, Tencent’s QQ, Huawei, Qihoo’s 360, Tencent-backed Sogou, Xiaomi, Vivo, and OPPO.

• The announcement says (in Chinese) that browsers have spread “chaos” by amplifying unofficial media sources and disseminating news that violates regulations. 
• It criticizes browsers for editorializing articles to misrepresent policies that impact people’s livelihoods and spreading rumors.
• It also singles out problems like creating clickbait through exaggeration, sadfishing, or smearing. On QQ’s homepage on Oct. 27, for instance, one top post was “No hope! Western media: No saving Huawei.”
• Also under fire is information that is vulgar, graphic, or gossipy and against “socialist core values.”
• Browsers must submit plans on how they will rectify their practices and conduct self-scrutiny by Oct. 28. They will also have to submit reports on the results of these assessments and their content operation system specifications by Nov. 9.
• Huawei and QQ have already issued statements promising to clear up their browsers of questionable content. 

Context: Unlike the US where services are protected from liability for content published on their platforms, China holds companies accountable for content that appears on their home pages. Mobile web browsers wield distinct power: 872 million people in China access the internet through their mobile phones, and browser home pages have become key to their news-reading habits. 

Huawei said Friday its earnings for the first nine months of the year “met expectations,” though its revenue growth in the third quarter slowed sharply from the previous quarter.

Why it matters: The deceleration highlights how US restrictions on Huawei’s ability to source crucial high-end semiconductors have taken a toll on the Chinese telecommunication company’s business.

Details: Huawei said in a statement Friday that it booked income of RMB 671.1 billion (around $100.4 billion) in the first nine months of the year, growing 9.9% year on year.

• The company’s revenue for the third quarter was RMB 217.3 billion, a year-on-year increase of 3.7%, according to TechNode’s calculations of earlier data. The company’s second quarter revenue had rebounded to 22% compared with the same period a year earlier.
• The company’s net profit margin in the first three quarters was 8.0%, compared with 8.7% in the same period last year, according to the company’s statement disclosing unaudited financial data of the period.
• “Throughout the first three quarters of 2020, Huawei’s business results basically met expectations,” it said.
• The Shenzhen-based company said its supply chain was “under intense pressure” and its production activities and operations saw “increasing difficulties,” citing only the global outbreak of Covid-19. However, a series of sanctions imposed by the US government have cut the company off from the global semiconductor supply chain, and it is now relying on wafer stockpiles to maintain production.
• Analysts predict the company’s stockpiles of semiconductors will only last until June 2021.

Context: After three rounds of export restrictions, the Chinese telecommunications equipment and smartphone maker has lost nearly all access to semiconductors using US technology—specifically the high-end chips it needs for its carrier and handset businesses.

• In May 2019, the US government banned American companies from shipping components and technology to Huawei, but granted the company a series of reprieves, the last of which expired in August.
• In May and August, the US imposed similar export requirements on global semiconductor foundries that use American technology and third-party vendors that sell products to Huawei.
• In July, Huawei said its revenue during the first half of the year grew 13.1% to RMB 454 billion.

Sweden has banned Chinese telecommunications equipment makers Huawei and ZTE from participating in its 5G network rollout, the country’s top telecoms regulator said Tuesday.

Why it matters: The development shows European countries are tightening restrictions on Chinese suppliers for their 5G infrastructure, signaling the US government’s campaign to eliminate Huawei equipment from Western communications networks is gaining traction.

• Swedish company Ericsson, a key rival to Huawei, has been selected to supply parts for 5G core networks belonging to China’s three state-owned telecom companies.
• The decision may mean that Sweden could face retaliation from China. Ericsson relies on China to produce some equipment it designs and China’s Ministry of Commerce is mulling export controls that would prevent the company from sending products it makes there to other countries, the Wall Street Journal reported in July citing people familiar with the matter.

Details: Sweden’s top telecom regulator Post and Telecom Authority (PTS) is set to hold spectrum auctions on Nov. 10. The government body said in a statement Tuesday that potential license grantees must not use products from Huawei and ZTE in new central function installations.

• Existing infrastructure for central functions containing products from Huawei and ZTE must be phased out before Jan. 1, 2025, the regulator said.
• PTS said in the statement that the conditions were based on assessments made by the Swedish Armed Forces and the Swedish Security Service.
• Klas Friberg, head of the Swedish Security Service, said Tuesday that “China is one of the biggest threats to Sweden” and that the country must consider when building the 5G network what he called the Chinese state’s cyber espionage conducts.
• Huawei said in a statement to TechNode Wednesday that it is “surprised and disappointed” by the Swedish government’s decision and that “there is not any factual ground to support allegations of Huawei posing any security threat.”
• “We find the exclusion of Huawei simply based on groundless presumption unfair and unacceptable,” the company said. It also called on Sweden to “reevaluate” the decision.
• ZTE did not respond to a request for comment on Wednesday.

Huawei’s future in EU: The US government has been campaigning its allies to avoid Huawei equipment from their networks since last year. 

• So far, some US allies such as Australia and Japan have imposed de-facto bans on Huawei. Some European countries like the UK and France decided to phase out Huawei equipment over the next few years. 
• Many Western European countries, which are mostly member states of the European Union (EU), including Germany, Italy, and Spain, are on the fence.
• The EU’s stance on Huawei is relatively clear—it has released a “toolbox” and guidelines on how member states should evaluate 5G gear provider risks and trustworthiness without mentioning any specific country or company. However, its member states are taking various approaches.
• The toolbox and guidelines are not legally binding, so the results depend on how countries interpret and implement them. One example is Belgium, whose major telecom operators had chosen European vendors Ericsson and Nokia to build their 5G networks. This approach avoided enraging Beijing and largely followed Washington’s will. But the question is whether this will become the norm.
• “Huawei’s expulsion from all of Europe’s core networks seems to be a question of when, not if,” Jan Stryjak, associate director at market research firm Counterpoint, wrote in an article published in September.
• Stryjak told TechNode in a recent interview that he said as much because “more and more countries are opting to remove Huawei from their core networks in place of alternative vendors like Nokia or Ericsson.” 
• “Since no country would want to be alone in bucking the trend, solidarity seems to be the name of the game, which is bad news for Huawei,” he said.

Chinese smartphone maker Huawei is in talks with several Chinese electronics companies to sell parts of its Honor smartphone unit, Reuters reported Wednesday.

Details: Digital China, a Shenzhen-based cloud service provider, has become the frontrunner in the contest to buy Huawei’s Honor business. Other suitors include Chinese electronics maker TCL and budget smartphone maker Xiaomi, according to Reuters, citing people familiar with the matter.

• The deal could include the Honor brand, research and development capabilities, and related supply chain management business.
• The deal may be an all-cash sale and could worth somewhere between RMB 15 billion (around $2.2 billion) and RMB 25 billion, one of the sources said.
• Honor is a budget smartphone brand that Huawei established in 2013. The business mostly operates independently from Huawei, Reuters said.
• Huawei has been heavily restricted from accessing advanced semiconductors that are crucial to its smartphone production. A change of owner may help Honor circumvent the restrictions, according to Kuo Ming-chi, an analyst at TF International Securities.

Go deeper: Exclusive: Huawei in talks to sell parts of its Honor smartphone business – sources – Reuters

Shanghai-based Hurun publishing group estimated that Huawei, which it calls the most valuable consumer electronics company in China, is worth $160 billion in its first-ever report ranking the country’s consumer electronics companies published on Monday.

Why it matters: Assessing Huawei’s value is difficult because the company is not publicly traded. The report offers a glimpse of the mysterious company’s overall size and how its value has been impacted by US sanctions aiming to cut it off from the global semiconductor supply chain.

Details: Hurun said in a report (in Chinese) Monday that Huawei was valued at RMB 1.1 trillion (around $160 billion), ranking it as the most valuable consumer electronics company in mainland China.

• Rupert Hoogewerf, Hurun’s chairman and chief researcher, said in the report that Huawei’s valuation shrank from RMB 1.2 trillion last year to RMB 1.1 trillion this year because of US sanctions.
• The valuations were calculated by share prices as of market close on Sept. 30 for publicly traded entities, or estimated based on similar public companies if they were unlisted, according to Hurun.
• Trailing Huawei are Chinese smartphone makers Xiaomi, valued at RMB 434 billion; Vivo, worth RMB 175 billion; and Oppo at RMB 170 billion.
• Huawei declined to comment on the valuation.

Context: Though not listed, Huawei releases reports about its quarterly and annual earnings. In July, the company said its revenue for the first six months of the year grew 13.1% year on year to RMB 454 billion.

• Huawei maintains that it is a private company 100% owned by its employees. The company had issued virtual shares to some 104,572 employees as of end-2019, including company founder and chairman and chief executive Ren Zhengfei, who held 1.04% of Huawei’s total shares, the company said in its 2019 annual report (in Chinese).
• The South China Morning Post said in a report in September that each virtual share of Huawei was valued at RMB 7.85 in 2019.

From Washington to Berlin, New Delhi to Shanghai, Chinese tech companies remain entangled in geopolitical conflicts this week. In the US, the Chinese-owned video-sharing app Tiktok just won an initial success in its legal challenge against the Trump administration. White House officials renewed pressure on Europe to ban Huawei from their next-generation 5G networks after German Chancellor Angela Merkel refused a full ban on the Chinese telecommunications equipment maker. A new round of export bans were imposed on China’s largest chipmaker SMIC by the US. In India, banned Chinese apps are trying to re-enter the market with revised names and logos.

Tiktok’s initial win

On Sunday, a US judge halted a looming Tiktok ban at the last minute. The ban, announced by US President Donald Trump last Friday, would have removed Tiktok from American app stores starting from midnight Sunday.

• The injunction granted by US District Judge Carl Nichols gave Tiktok a temporary reprieve amid ongoing deal negotiations to meet with Trump’s demand to sell Tiktok’s US operations. 
• However, the judge didn’t consider Tiktok’s appeal to block an executive order from Trump demanding the company to divest from its American assets, according to court documents. The order, requiring Tiktok parent Bytedance to either spin off or sell the app’s US operations within 90 days, will go effect on Nov. 12.
• Bytedance has applied to the Chinese government for a deal that would give American software maker Oracle and retail giant Walmart a combined 20% stake of Tiktok’s proposed US business. Beijing hasn’t yet made a final decision, but smoke signals from state media indicate opposition.
• In the past week, the party mouthpiece People’s Daily published three editorials commenting on the Tiktok deal. One of which (in Chinese) reads: “The ‘Tiktok deal’ is based on unfairness… If the forced deal finally goes that way, American stakeholders would earn tens of billions of dollars…then why do they need venture capital and entrepreneurship in the country when they can just mug Chinese companies?” (our translation).
• “China won’t swallow its tears when its core interests are endangered, and Chinese companies are not lambs to the US slaughter,” said another editorial (in Chinese).

US renews campaign to ban Huawei in Europe

On Tuesday, Keith Krach, the US undersecretary of state for economic affairs, said Finland’s Nokia and Sweden’s Ericsson were the only companies that European governments should choose for the 5G network rollouts. Huawei is “an arm of the CCP surveillance state and a tool for human rights abuse,” Reuters quoted him as saying.

• Krach’s remarks came as Germany and Italy are deciding whether to allow Huawei to participate in building their 5G networks. Last week, Merkel refused to compromise on her position that Germany shouldn’t single out Huawei with a targeted ban, Bloomberg  reported. Her government finalized draft regulations for the security of Germany’s 5G network, which would tighten the government’s scrutiny over equipment vendors.
• Before Germany made its 5G decisions, the UK and France had adopted a de-facto ban on Huawei, vowing to phase the company’s products out from their 5G and 4G networks in the next few years.

SMIC on Huawei’s heels

Shares of Semiconductor Manufacturing International Corp (SMIC) tumbled more than 6% this week after reports that the US had imposed restrictions on exports to the Shanghai-based chipmaker. The decision was made by the US Commerce Department on Friday upon the conclusion that SMIC’s products could be used for military purposes and therefore pose “unacceptable risk,” Reuters reported Saturday.

• The Commerce Department said in a letter to some suppliers of SMIC that they will now have to apply for individual export licenses to ship to the Chinese company.
• On Monday, the Shanghai-listed company said in a statement (in Chinese) filed with the Shanghai bourse that it had not received any official notifications about the restrictions from the US government. The company also said it had no relationship with the Chinese military and had never produced products for military end-users.
• Chinese Foreign Ministry Spokesman Wang Wenbing told reporters Monday that China opposes (in Chinese) US restrictions on SMIC and that the country would take necessary measures to safeguard the interests of Chinese enterprises.

Chinese apps launch second offensive into India

In India, several Chinese apps previously banned by New Delhi are trying to reenter the market with rebranded versions, local newspaper The Economic Times reported.

• Chinese video app Kuaishou has launched video-sharing app Snack Video, a Tiktok lookalike. Kwai, an international version of Kuaishou, as well as Tiktok were both banned in India in June.
• Hago, another Chinese social media app banned in June, has been replaced by an app called Ola Party, which allows users to log in using their Hago credentials, according to The Economic Times.
• The Indian government has banned a total of 177 Chinese apps from the country in two rounds of app bans imposed in June and September. The most high-profile apps banned including Bytedance’s Tiktok, Kuaishou’s Kwai, Tencent’s instant messaging app Wechat and the popular mobile game Player Unknown’s Battlegrounds, or PUBG.

The US Commerce Department license granted to Intel allowing it to continue supplying Huawei shows that Washington wants the Chinese telecommunications company to rely on US products rather than make its own chips, according to an industry expert.

The US government has imposed license requirements on chipmakers around the world which want to sell products that contain US technology to Huawei. The new restrictions came into effect on Sept. 15.

Silicon Valley-based Intel supplies integrated circuits such as systems-on-chip (SoCs), central processing units (CPUs), and graphics processing units (GPUs), used in computers. However, the company doesn’t contract out its manufacturing capabilities to make customized chips for clients, nor does it sell chip-making tools or machinery.

The move shows the US “may be willing to grant licenses as long as it doesn’t help Huawei create its own chips,” Stewart Randall, head of electronics and embedded software at Shanghai-based consultancy Intralink, told TechNode on Thursday.

Intel’s license to continue shipping to Huawei doesn’t help Huawei make its own chips but it does help the Chinese company’s server, personal computer, and laptop product lines, Randall said, adding that this shows Washington wants Huawei to “rely on US chips.”

Intel is the first company known to have received US permission to sell chips to Huawei. Huawei suppliers around the world, including Chinese contract chipmaker Semiconductor Manufacturing International Corp., South Korean chipmaker SK Hynix, and Taiwanese chip designer Mediatek, have applied to the US government for similar licenses. None of the applications have yet been approved.

On Wednesday, Huawei rotating chairman Guo Ping told reporters that US chipmaker Qualcomm is applying for a license to sell its chips. “If Qualcomm were granted the license, we will be willing to use their chips to make phones,” said Guo.

Huawei now relies on its stockpile of semiconductors to continue making products ranging from 5G base stations to smartphones and laptops. Guo said Wednesday that the company is still verifying how many wafers they have in stock.

“We have sufficient chip stock for base stations… But as to smartphone chips, we are still looking for solutions because Huawei uses hundreds of millions of smartphone wafers every year,” Guo said.

Analysts said Huawei’s stockpile of chips may last four to 10 months. “We are confident that Huawei’s chip stock can last until the end of this year… It is possible that Huawei will still have chips to use in the first half of 2021, but, in this period the uncertainty is huge,” IDC analyst Will Wong told TechNode in an interview last week.

Huawei’s long-awaited Android replacement is here. On Sept. 10, the company announced that its in-house mobile operating system, the Harmony OS, will be available on handsets starting next year.

The announcement came just days ahead of a US Commerce Department deadline which cut the company off from all possible sources of high-end chips, critical for its smartphone and carrier businesses. Analysts said the company may have to halt hardware production starting in the middle of next year.

The company first debuted Harmony OS in August 2019, shortly after new Huawei devices lost access to Google services on the official version of Android as a result of a May 2019 US ban. Harmony was widely seen as an alternative to Google’s Android mobile operating system, but at first Huawei only deployed it on devices like smart television sets and smart watches.

Starting from scratch

A third operating system outside of Apple’s iOS and Google’s Android could be an important source of revenue for Huawei’s consumer business to offset losses in hardware sales. In 2019, income from mobile services accounted for 10.5% of Google parent company Alphabet’s revenues and 17.8% of Apple’s, according to TechNode’s calculations.

Experts say that it will be difficult for Huawei to generate material revenue from the new operating system. The company faces challenges ranging from establishing a profitable business model to attracting app developers. If Huawei can no longer make smartphones, persuading other phone makers to adopt the system will prove challenging, they said.

Both Google and Apple take a 30% cut from transactions made on their platforms, which include sales of apps and digital content, as well as in-app purchases.

But there is a difference in China which makes earning revenue more difficult, according to Rich Bishop, chief executive officer of Appinchina, a company that helps overseas developers distribute their apps in China.

“All of the [third-party Android] app stores in China only make money from games. For any non-gaming apps, they don’t charge any fee.”

“But if they are able to make Harmony OS successful, for example, they have 500 million people around the world using Harmony OS to download apps and games from the Huawei store, then potentially they could make a lot of money,” Bishop explained.

“But that really depends on whether they can persuade everybody to sign up to Harmony OS.”

Will Huawei convince developers?

It is relatively easy for a developer to convert an Android app to a Harmony OS app, Bishop said. “Huawei obviously is a massive company with a lot of resources, and they are working very hard to try to persuade as many developers as possible to set up a Harmony version of their apps,” he said.

But according to Richard Yu, president of Huawei’s consumer business, the company’s mobile service ecosystem now has around 1.8 million developers, but only 96,000 apps. Most of these developers have yet to make an app for Harmony OS.

“Most developers are basically going to wait and see because they don’t particularly want to start assigning resources to develop for a third mobile OS,” Bishop said.

“I think they are just gonna see how successful the ecosystem is and whether other companies are making good money from Harmony OS, and then they may decide to develop Harmony OS apps too.”

Weighing politics and competition

The other challenge Huawei faces in promoting the Harmony OS is attracting new users. It is now the world’s largest smartphone vendor, but its handset capacity is under huge pressure because of the semiconductor restrictions.

Rumors spread that Huawei smartphone peers Xiaomi, Oppo, and Vivo could adopt Harmony OS, with a number of articles in Chinese either predicting that they would or calling upon them to do so in support of the company. Huawei denied that it had reached a deal to put Harmony on competitors’ phones, but none of the other companies have commented.

But they would have to be very patriotic to support a competitor.

“Smartphone makers like Xiaomi, Oppo, and Vivo have been facing great pressure from Huawei in the past year after it shifted its focus on the domestic market,” Will Wong, analyst at market research firm IDC, told TechNode. 

“If they adopt Harmony OS, they are essentially helping Huawei. So I think the possibility is low.”

Bishop of Appinchina agrees. “I don’t think that other domestic manufacturers like Xiaomi and Oppo would want to use Harmony OS, because obviously, it is a much weaker ecosystem than Android. And it’s run by a competitor, Huawei,” he said.

Both Wong and Bishop reckon that the only reasons that other Chinese phone makers would use Harmony OS would be “political.”

“I don’t think Huawei’s competitors will say ‘absolutely no,’ to Harmony OS because the political risk is a very important factor in today’s market,” said Wong.

“The only way I can really see it working is if the Chinese government, because of the US-China decoupling, says: ‘all right, China needs its own mobile OS.’ And therefore, they kind of require every Chinese manufacturer to offer Harmony OS or to have it as an option,” said Bishop.

On Wednesday, Zhang Pingan, president of Huawei’s consumer cloud business unit, told reporters that the ecosystem of Harmony OS is always “open” to other smartphone makers.

“I think we will work together with all hardware makers to build a better ecosystem and help developers avoid switching back and forth between different platforms,” he said.

US officials have complained many times about “loopholes” that allow Huawei to keep its chip supply chain running in the face of export controls. Now it seems that the “loopholes” are closed, and tight.

After being subjected to three rounds of export restrictions, the telecommunications equipment and smartphone maker has lost nearly all access to semiconductors using US technology—meaning the high-end chips it needs for its carrier and handset businesses.

Richard Yu, president of Huawei’s consumer business, said Aug. 7 that the company had to stop making its in-house Kirin chips, which are widely used on the company’s mobile devices, because they are made using US technology.

Despite the looming bans, Huawei has been on a roll lately. The company was ranked the world’s largest smartphone vendor for the first time in the second quarter. However, in an event last week, Yu said the growth of Huawei’s smartphone sales during this period had been “affected” by “a shortage of components.”

In other people’s eyes, however, the situation could be much worse. Analysts told Reuters that US export restrictions would threaten Huawei’s status as the world’s largest handset maker, and warned its smartphone business would “disappear entirely” if it could not source the chips it needs.

The uncertainty in Huawei’s supply chain has also taken a toll on its carrier business. The British and French governments have told domestic telecom operators to phase out Huawei equipment, citing the risks of the company’s supply chain continuity.

It looks like the end of the world for the company. But what options does Huawei still have? We asked experts, and it doesn’t look good.

What happened this week?

Huawei has faced escalating US restrictions for over a year.

May 16, 2019: The US government bans American companies from shipping components and technology to Huawei, but granted the company a series of reprieves, the last of which expired in August. 

May 15, 2020: The White House announces plans to tighten its stranglehold, cutting Huawei off from global semiconductor foundries that use American software and technology to Huawei. These news rules officially took effect on Tuesday. 

Aug. 17: US government expands licensing requirements, seeking to prevent Huawei buying US-linked chips through subsidiaries or third-party vendors

After Tuesday’s deadline, Huawei will lose access to most of the semiconductor fabrication plants in the world that can make high-end chips because they use US technologies. Huawei cannot buy ready-made chips that contain US technology from any third parties because of the August ban.

Experts said that the US will move swiftly to block any further “loopholes.” The company has stockpiles of chips, but only enough to last a few months. It has to plan out how to use these stockpiles in order for its production to continue.

Can Huawei still get chips?

Huawei has an in-house chip designer known as Hisilicon. This subsidiary designs a variety of chips used in Huawei’s products. They include the Kirin series for mobile devices and the Balong series for telecommunications gear.

Hisilicon could struggle to continue designing Kirin or Balong chipsets because it lost access to US-origin electronic design automation (EDA) tools, Jan-Peter Kleinhans, project director at Germany tech-policy think tank Stiftung Neue Verantwortung, told TechNode in an email.

EDA is a category of software tools for designing electronic systems such as integrated circuits and printed circuit boards. The EDA industry is dominated by three US, or US-linked, firms—Synopsys, Cadence, and Mentor Graphics. Together they account for 60% to 70% of the global EDA market and around 95% of sales in China.

But even if Huawei managed to design chips, it would still need an outsourced fabrication plants to manufacture them, like nearly all semiconductor companies. Taiwan Semiconductor Manufacturing Co. (TSMC), South Korea’s Samsung, and Chinese company Semiconductor Manufacturing International Corp. (SMIC) are Huawei’s existing suppliers. All three are forbidden to use US-origin manufacturing equipment to fabricate chips for Huawei, Kleinhans said.

They can apply for licenses to continue supplying Huawei—but it’s up to Washington whether to grant them. SMIC, China’s biggest chipmaker, said Tuesday it had applied to the US government for a license to continue supplying to Huawei. TSMC reportedly planned to apply for a license to continue shipping to the company. A unit of Samsung is also seeking approval from the US government to continue supplying Huawei.

“The outlook is rather grim,” Kleinhans said. “Also, even if Huawei finds ways around the current restrictions, the US government’s trajectory is pretty clear: this is now the third export ban against Huawei. There can easily be a fourth or a fifth, if they deem it necessary.”

So far, none of the applications have been approved.

How will Huawei make phones?

With Huawei’s chip stockpile, smartphone production may not need to halt immediately. But the question is: How long will Huawei’s stockpile last?

Four to 10 months, according to analyst Will Wong at market research firm IDC.

Wong told TechNode that Huawei currently has a stock of high-end chips from TSMC and medium- to low-end chips from Mediatek, a Taiwanese chip designer.

“We are confident that Huawei’s chip stock can last until the end of this year,” Wong said. “It is possible that Huawei will still have chips to use in the first half of 2021, but, in this period the uncertainty is huge.”

The company might use Mediatek chips to produce more medium- to low-end phones during the rest of the year to make up its losses in the high-end handset market, said Wong, adding that Huawei might have to save some chips for production next year.

“All Huawei has to do is to bide its time, because there might be a turnaround after the November US presidential election,” he said.

“No matter how much chip stock does Huawei have, it has to race against time,” he said. “There may be a better situation after the election, or perhaps Huawei can manage to produce chips in China, but the key is time.”

A Huawei spokesman declined to comment on questions about the company’s plans for chip sourcing. He said in a statement to TechNode that the company is “still evaluating the long term impact of the matter at hand and are actively seeking solutions to minimize the impact for everyone.”

How will Huawei’s carrier business be affected?

The US government has been pushing Western countries to avoid Huawei equipment in their next-generation 5G networks, saying that the Chinese government could use its gear for spying purposes. Huawei, the world’s largest supplier of telecom equipment, has repeatedly denied the allegations.

Eventually, some US allies announced they would begin excluding Huawei. But what made some European countries dodge Huawei products were not Washington’s security warnings, but the possibility that the company would not be able to supply them due to semiconductor export bans.

In July, the United Kingdom and France instructed telecom operators to phase out Huawei equipment from their current networks over the next few years. Both countries cited the uncertainty around the company supply chain as a reason for doing so.

“The UK government revised its 5G strategy and excluded Huawei from further 4G/5G deployments exactly because they are not confident that Huawei will be able to serve British operators in the future because of the US export control,” said Kleinhans.

“Following the UK’s analysis, I think it’s fair to say that Huawei will struggle to maintain or even upgrade customer networks in the near future,” he said.

Chinese broker Huajing Securities downgraded its rating of Shanghai-based chipmaker SMIC to “sell,” citing US-China tensions and its inability to continue supplying Huawei.

Details: Huajing Securities analyst Zhao Bing lowered his rating for Semiconductor Manufacturing International Corp. (SMIC) shares trading on Shanghai’s STAR Market to “sell” from “buy.” He also lowered its target price to RMB 47.5 (around $7) from RMB 55.23 in a research report (in Chinese) published Tuesday.

• Even though the chipmaker has seen the capacity of its 14-nanometer chips steadily increase, it will be difficult for the company to convert the increased capacity into profit because it had to stop supplying to Chinese telecommunications equipment and smartphone maker Huawei, according to Zhao’s report.
• The report also cited a Reuters story which said that the company might be added to a US Entity List, which bans American companies from shipping technology or components to blacklisted firms. “If SMIC is added to the Entity List, its clients will dial down their interests in SMIC products out of concern for the company’s shipment continuity,” Zhao wrote (our translation).
• SMIC did not respond to an emailed request for comment.

Context: The chipmaker said Tuesday that it had applied to the US government to continue supplying to Huawei. On the same day, a grace period for a US semiconductor ban against Huawei expired, meaning SMIC, which uses US technology and machinery to make chips, can no longer ship to Huawei.

China’s biggest contract chipmaker SMIC has applied to the US government to continue supplying to telecommunications equipment maker Huawei, local media reported, after the grace period for a semiconductor ban expired on Tuesday.

Details: Shanghai-based Semiconductor Manufacturing International Corp. (SMIC) told Chinese newspaper Securities Times that the company had applied to the US government to continue shipping to Huawei and vowed that it would “strictly comply with laws and regulations.”

• Shares of the company jumped 8.4% on Wednesday morning in Hong Kong on the news. 

Context: SMIC itself, however, is under threat of being added to a US technology export blacklist. The US Defense Department said earlier this month that the Trump administration is considering imposing export restrictions on the company.

• Experts told TechNode that SMIC may not have the capacity or capability to produce chips Huawei needs because its technology is “generations behind.”
• SMIC is able to make 14-nanometer (nm) chips. In May, SMIC received $2.2 billion from Chinese state-backed venture capital funds to increase the capacity of one of its 14-nm chip fabrication plants.
• However, the chips Huawei needs include 5-nm Kirin 1100 processor for servers and 7-nm Kirin 810 chip for smartphones. Taiwan’s Taiwan Semiconductor Manufacturing Co. (TSMC) is able to make more advanced 7-nm chips, but the company has reportedly halted shipment to Huawei.

The global economic downturn caused by Covid-19 was always going to hit the smartphone market. But as smartphone makers shifted their conferences online, pandemic conditions eased up in China, making it the only phone market in the world that saw sequential growth in the second quarter of the year.

A ‘new’ 5G Iphone?

Apple’s Chief Financial Officer Luca Maestri told investors on a recent call, “Last year we started selling new Iphones in late September; this year we expect supply to be available a few weeks later.” The new phone may launch on time, but delivery and sales will face delays.

It may well be that Tim Cook isn’t worried about the delay. Last year, even though Apple was forced to accept price cuts and massive discounts, the new Iphone 11 became one of the best-selling phones in China. Alongside it came the revamped Iphone SE, whose strong value for money made it the most popular Apple model in the world. Global shipments of the new Iphone SE reportedly reached 12-14 million units in Q2 2020.

The success of these two phones gives Apple reason for confidence. According to data from market research firm CINNO, in Q2 2020, Iphone sales in China increased 62% year-on-year to 13 million units.

With this momentum, the launch of the 5G Iphone, expected in fall 2020, is hotly anticipated.

5G is becoming an essential selling point in the Chinese market. Statistics from the China Academy of Information and Communications Technology show that domestic 5G mobile phone shipments reached 13.911 million units in July. The data shows that 5G smartphones accounted for 62.4% of domestic mobile phone sales, exceeding 60% of the total for the second consecutive month.

The wave of 5G replacements is likely to build over the next few months. Analysis by research firm Counterpoint suggests that more than 50% of global 5G phone sales this year will come from China.

The survival of Huawei

At the end of March, Huawei rotating chairman Xu Zhijun said that 2020 was Huawei’s most difficult year, and called for the company to come together to overcome its difficulties.

When it rains, it pours.

According to international media reports, Huawei’s temporary reprieve from a ban on importing US technology expired on Aug. 13 this year. There has been no word of a renewal.

Its relationship with the Google Play Store has been severely disrupted. Huawei devices that came with pre-installed Google mobile services can still download and update Google applications through other channels. But newly released phones, such as the P40, cannot use such services.

Huawei is working to mitigate the loss of the Google Play Store. Its phones come equipped with a Huawei suite of mobile services, and a homegrown operating system called HarmonyOS, or HongmengOS in Chinese, is coming to smartphones in early 2021, the company announced Sept. 3.

On the existing foundations of the HarmonyOS ecosystem, breaking into overseas markets may take a while. Few of the world’s most popular apps are available in Huawei’s app store, although some can be installed independently. Richard Yu has predicted that apps like Facebook will eventually join the Huawei app store.

Harder to evade are the US’s new restrictions on the company’s semiconductor supply chains.

Huawei’s executive director Richard Yu said at the China Informatization Hundreds Conference 2020 that due to the second round of sanctions by the United States, Huawei will lose its chip making capacity on Sept. 15. As a result, the company’s smartphone shipments this year might be fewer than last year’s 240 million, Yu said.

The dwindling supply of chips will severely challenge Huawei’s market competitiveness in the phone business. Coupled with the ban on overseas GMS services, its vitality in overseas markets has been struck a heavy blow, and this has cast a long shadow over Huawei’s confident New Year vision.

Xiaomi at ten: a fork in the road

When Covid-19 hit China, Xiaomi’s shipments were already lowest among the four leading manufacturers, which also include Huawei, Oppo, and Vivo.

Despite strength in online sales channels, the epidemic era hasn’t been kind to it. In Q2 2020, the company accounted for only 10.4%, or 9.1 million, of the 87.8 million smartphone units shipped in China, its 21.9% year-on-year drop in sales second worst among the major brands, data from IDC said.

Xiaomi’s setbacks overseas have been worse as it lost production and order capacity due to the virus. In India, one of its strongest markets, Xiaomi’s overall shipments fell 48.7% year-on-year.

Xiaomi models do not have a reputation for value, and it hasn’t come up with an alluring flagship model to attract consumer attention. Its surround-screen model , announced with much fanfare last year, was indefinitely delayed in 2020. The same holds true for chips. After the first generation of its phone chips was released in 2017, Xiaomi hasn’t released any plans for a second generation.

Xiaomi also lags its peers in R&D spending. In 2019, Oppo and Vivo both increased their R&D spend to RMB 10 billion ($1.46 billion) . Xiaomi only invested RMB 7.5 billion in 2019, and plans to reach RMB 10 billion this year.

Lei Jun, Xiaomi’s co-founder and CEO, has pursued business diversification for a while. But despite growth in IoT sales prior to 2020, Xiaomi remains a smartphone company. Its handset shipments account for 50.1% of its total revenue.

Internet of Things (IoT) products have performed well in recent years. But even in this market, Xiaomi is slowing down, weighed down by excessive reliance on hardware sales and the complicated supply chain logistics of selling hundreds of products. Its Q1 2020 earnings report shows little growth in IoT.

Oppo is diversifying

Meanwhile, Oppo has increased its investments overseas and established a semiconductor company called Zheku Technology.

Zheku may be Oppo’s way out. The company has always focused on marketing and offline channels and has suffered a lot during the Covid year. Its eye-catching advertisements—often seen on other manufacturers’ gadgets—are increasingly unable to cover up performance shortcomings. These are now compounded by anti-China sentiment in India, which sent shipments to India plummeting in the second quarter by 51% year-on-year. Oppo has lost more than any other of the top five brands in India.

For Oppo, this year may be the most difficult since it got into smartphones. This is despite Oppo’s accomplishments in 2019: reorganizing its product line, strengthening finances, establishing an independent chip department, developing independent sub-brand Realme, and launching IoT products; it also began to increase R&D to compete with its rivals.

A painful readjustment is now necessary. In the face of these challenges, Oppo recently announced that OnePlus founder and CEO Pete Lau (who will remain founder and CEO of OnePlus) has returned as senior vice president of shared parent company Ouga Holdings, and is fully responsible for the Ouga ecosystem’s product planning and experience, including Oppo.

In desperate times, Oppo is rallying its troops, and wants to reorganize its product line by bringing back veterans of the brand, strengthen differentiation, guard its market share, and regain the attention of its customers—who have very much glanced away.

Chinese smartphone maker Huawei announced Thursday that Harmony OS, its in-house replacement for Android, is coming to smartphones. The mobile operating system will be available to developers in December, company officials said, with consumers to see it next year.

Why it matters: This is the first time the embattled Chinese company confirmed that its HarmonyOS, known in Chinese as HongmengOS, will run on mobile devices. The new OS is a sign that Huawei is inching towards independence from American technology for its smartphone ecosystem.

• The company first announced the operating system in August 2019 after new Huawei devices lost access to Google services on the official version of Android as a result of a May 2019 US ban.
• HarmonyOS, widely regarded as an alternative to Google’s Android mobile operating system, already runs on a series of Huawei devices such as smart television sets and smartwatches.
• The company previously did not confirm that the system would be deployed to smartphones. Analysts told TechNode that this was to avoid “harming its relationship with Google.” Most current Huawei handsets still use the Android operating system.

Details: Richard Yu, head of Huawei’s consumer business group, said in an event Thursday afternoon that HarmonyOS will come to smartphones early next year, as he announced the 2.0 version of the operating system. Developers will get early access in December.

• Yu, citing market data, said that the company became the world’s largest smartphone vendor in the second quarter. “But a shortage of components has affected our growth in recent months,” he said. 
• Yu had previously said Huawei would stop making the Kirin chipsets used in high-end smartphones starting from September, citing US pressure on the company’s suppliers.
• Yu also said that a Hongmeng app ecosystem is developing. A Huawei executive said in November smartphones running the HarmonyOS was ready in technology, but the app ecosystem was “lagging behind.”
• The HarmonyOS ecosystem has around 1.8 million developers and some 95,000 apps, said Yu. He added that developers can easily convert an existing app for other devices to a smartphone app on the HarmonyOS.
• Yu also announced that the operating system will be open-sourced on Gitee.com, a Chinese homegrown alternative to American source code management platform Github, on Thursday. In July, the Chinese government chose (in Chinese) Gitee.com to build a Chinese “independent open-source code hosting platform.”

Context: Huawei sold 55.8 million smartphones in the second quarter and, for the first time, reached the top spot in global smartphone vendor ranking, according to market data provider IDC. But the US-China trade war has threatened the company’s access to critical inputs for its smartphones.

• On Aug. 18, the US Commerce Department added 38 Huawei subsidiaries into the so-called “Entity List” and imposed license requirements on any transactions involving items subject to US export controls, meaning that Huawei can’t purchase commercially available chips it needs from third-party vendors.
• The bans will tighten next week, when major chipmakers plan to end shipments to Huawei on Sept. 15.

Correction: An earlier version of this story wrote that HarmonyOS will be “deployed” to smartphones in December. In fact, it will be made available to developers in December, according to the company’s announcement, and consumers will get phones with the new operating system next year.

Chinese telecommunications equipment makers Huawei and ZTE have slowed their 5G base station installation in the country amid increasing uncertainty in its key component supply chain, Nikkei Asian Review reported Wednesday.

Why it matters: The two companies grabbed more than 80% of 5G base station contracts from China’s three main telecom carriers. The throttling of their 5G base station construction signals that US export controls are taking hold, curbing their ability to source key components.

• The slowdown is also a result of Chinese carriers’ prudent investment strategy for the next-generation wireless technology.

Details: Huawei and ZTE are working on re-designing some of their 5G products to remove as many US parts as possible, Nikkei reported. They told some suppliers to slow down shipments of certain 5G base station-related products in June.

• A ZTE component and part supplier executive said the company was told to slow shipments in June, and July shipments came to a near standstill. The executive said the company had to go through product verification tests again as ZTE has changed many of its designs.
• A Huawei supplier also told Nikkei that Huawei had changed some designs and replaced equipment used in the manufacturing process, which led to a slowdown in the installation of 5G base stations.
• Torrential rains and floods in southern China in the past few months have also contributed to delays in 5G base station installations, the report said.

Cautious stance: China’s three state-owned carriers—China Mobile, China Unicom, and China Telecom—have maintained prudent 5G budgets despite Beijing’s push to build more 5G cell towers, part of the so-called “new infrastructure” initiative in the post-virus stimulus measures.

• China Mobile kept its annual capital expenditure plan unchanged at RMB 179.8 billion (around $26 billion). Yang Jie, chairman of China Mobile, told reporters last Thursday that the company’s overall capital expenditure on 5G would not “increase drastically” in the next three years.
• China Unicom and China Telecom are jointly building a 5G network in the country. China Unicom Chairman Wang Xiaochu said last Wednesday that the alliance has saved the pair more than 40 billion yuan in capital expenditures over the year, according to the Nikkei report.
• However, the two carriers have kept their annual capital expenditure plan, totaling RMB 155 billion, unchanged for this year.
• The three carriers’ combined budget for 5G buildout in 2020 is RMB 180.3 billion, according to state-run China News Service.

Context: On Monday, the US Commerce Department expanded restrictions on Huawei, forcing non-US companies to apply for a license to sell chips made using American technology to Huawei.

• The Trump administration has already banned US companies from shipping components and technology to Huawei, and cut it off from overseas semiconductor manufacturers that use American software and technology.

The US Commerce Department issued Monday new rules expanding restrictions on Huawei, in a move that will further narrow the Chinese telecommunications equipment maker’s access to crucial chips.

Why it matters: The move could further close what some US officials call “loopholes” in Huawei’s chip supply chain, forcing non-US companies to apply for a license to sell chips made using American technology to Huawei.

• The Trump administration has already banned US companies from shipping components and technology to Huawei, and cut it off from overseas semiconductor manufacturers that use American software and technology.
• Monday’s new rules mean Huawei can’t circumvent the ban by purchasing commercially available chips it needs from third-party vendors.

Details: The US Commerce Department added another 38 Huawei subsidiaries into the so-called “Entity List” and imposed license requirements on any transactions involving items subject to US export controls, it said in a statement on Monday.

• This means vendors of chips made with US technology will have to apply for a license in transactions where Huawei or other companies on the Entity List act as a “purchaser, intermediate, or end user,” according to the statement.
• “These actions, effective immediately, prevent Huawei’s attempts to circumvent US export controls to obtain electronic components developed or produced using US technology,” the Commerce Department said in the statement.
• The US President Donald Trump reinforced his concern that Huawei equipment could be used to spy on Americans. During an interview on Monday on “Fox & Friends,” Trump called the Chinese company “Spy-Wei.”
• A representative of Huawei declined to comment to a request from TechNode on Tuesday.

Context: A series of US restrictions on critical chips has taken a toll on Huawei’s business, especially in the smartphone segment.

• Chinese media Caixin reported earlier this month that Huawei will stop making its flagship Kirin chipsets after Sept. 15 due to US pressure on suppliers. 
• Huawei’s high-end Mate 40 handsets, which will debut this fall, will be the last smartphones featuring the Kirin 9000 processor, company’s most advanced processor, said Yu Chengdong, head of Huawei’s consumer business, who called it a “huge loss” to the company, according to Caixin.
• Huawei’s in-house chip designer Hisilicon relies on software from US companies such as Cadence Design Systems and Synopsys to design its chips. It outsources the production of its chip designs to Taiwan Semiconductor Manufacturing Company, but the collaboration is under pressure because of new US export regulations announced in May.
• Mediatek, a Taiwanese chip designer, is widely seen as a possible alternative to Huawei’s Hisilicon. The company told Chinese business media Yicai Tuesday that it is evaluating the US export rule changes to make sure it complies with relative regulations.

Across China’s social media platforms, commentators agree on one thing: Bytedance better buckle up, because the US isn’t backing down anytime soon.

That might be their only point of agreement. Some suggest that Bytedance and others should take the high road and still champion globalization, but some others think it’s time to knuckle down. Some don’t rule out a Tiktok sale, and some are adamantly against it.

And they reach for different points of comparison too, some less familiar to Western audiences. What comes to mind when you think about Bytedance’s current predicament? Is it 1980s Japan? How about the Battle of Shangganling during the Korean War?

To give you an insight into what Chinese netizens are sharing, TechNode’s selected and translated some of the most popular Weixin and Weibo posts that have emerged over the past week.

A little déjà vu

For some commentators, what’s happening to Bytedance isn’t new. On microblogging platform Weibo, Ryo Takeuchi, a Japanese film director who lives in Nanjing, received over 100,000 likes for his comment (in Chinese) about 1980s Japan:

In my memory, Sony, Panasonic, and other companies were often chastised, and what we Japanese took for “self-improvement,” Americans took for ‘piracy.’ Afterwards, the US government started to use all kinds of methods to control and critique Japanese companies and the Japanese government. When I saw the news that Microsoft was suspending negotiations on purchasing Tiktok’s US business, I suddenly thought of that Japan, more than 30 years ago.

Meanwhile, Taiwanese comic artist “Lao Pei” saw some parallels with the fates of Alstom and Toshiba, in a comic (in Chinese) shared on Weibo by several users (3,500 likes):

Bytedance’s Zhang Yiming: ‘Too quick to kneel’?

Despite his predicament, Bytedance CEO Zhang Yiming has received startlingly little sympathy, with commentators accusing him of being naïve in adopting an apolitical “Martian perspective,” or of “kneeling too fast” in agreeing to sell Tiktok to Microsoft.

In a Weixin article (in Chinese) on “The frightening Zhang Yiming and his views on friendship!” Li Tongwei also notes a lack of support from Zhang Yiming’s colleagues compared to a 2018 episode with Lenovo (57,000 reads):

In recent days, there has been an unceasing stream of news about Tiktok meeting with unjust treatment overseas, but China’s domestic entrepreneurs have maintained a rarely seen collective silence. 

This is a vast difference from 2018, when Lenovo was accused of being “unpatriotic,” Liu Chuanzhi expressed his fury, and then half of the corporate community voiced their support.

As far as the eye can see, Bytedance seems to have no friends.

One other commentator, Wen Boling, has a bit more compassion for Zhang Yiming. Wang sees Zhang as soft, but typical of his generation’s entrepreneurs. In a Weixin article (in Chinese) “The Tiktok Affair: Scholar Zhang Yiming and Gangster [shehuiren] Trump,” Wen contrasts Zhang’s generation unfavorably with Huawei CEO Ren Zhengfei, and his reaction to his daughter’s detention in Canada (38,000 reads, 1,300 reactions):

Precisely because they knew what they were up against, Huawei and Ren Zhengfei steeled themselves to shoulder the burden till now, becoming heroes in Chinese people’s hearts. Huawei’s phones became patriotic products, and their sales volume steadily rose.

In the Tiktok incident, Zhang Yiming also had his chance to be a hero.

But his repeated concessions willfully cast away this opportunity, so not only does he lose money on his US business, he’s also gained a bad name in China.

‘Abandon your fantasies, and prepare to fight!’

Meanwhile, author “Xiaoxiang Sanren” sees a different generational divide on the other side of the Pacific: one between older doves and younger hawks in the US, which makes growing conflict inevitable. Xiaoxiang Sanren’s Weixin article (in Chinese) is, fittingly, titled “Bytedance: understand the terrain, abandon your fantasies, and prepare to fight!” (13,000 reads)

With the passage of time, there are fewer and fewer “old friends of the Chinese people.” Kissinger is 97 years old, and Bill Gates is 65—aged and marginal.

Long-time anti-China US Senator Marco Rubio is just 50 years old. And Zuckerberg? 36 this year, even younger than Zhang Yiming. You can imagine that Rubio and Zuckerberg will remain active in US government and business circles for quite some time, and their antagonistic attitude toward China will be hard to change.

Better to just get it over with, rather than prolong the agony. With the circumstances too strong to fight, abandoning the US market is perhaps a choice that Bytedance has no option but to confront.

But then, should Bytedance sell Tiktok to Microsoft? Absolutely not, writes “Xiaoxiang Sanren,” because this will threaten Bytedance’s business in China and elsewhere. “Death is coming anyway, so you might as well go down fighting.”

That hardline stance isn’t unique among Chinese commentators, and “The Talented Shui Mujun” goes for an even more military comparison in the most popular Weixin article we found (in Chinese), “The US is robbing Douyin in broad daylight, and the darkest hour is here: you can’t even imagine how much trouble China is in!” (over 100,000 reads, 36,000 reactions).

The article compares Bytedance and Huawei’s predicaments to the Korean War’s Battle of Shangganling, a bloody battle in which Chinese troops successfully repulsed UN forces at the cost of thousands of lives, later mythologized in a Chinese war movie.

Someone once said, “Huawei is the ‘Battle of Shangganling’ of the current US-China relationship. Only if we win a victory in this Battle of Shangganling will the US sign a peace agreement with China.”

Shangganling is just a little hill in North Korea, barely 3.7 square kilometers in size, truly insignificant.

But if you can’t hold onto Shangganling, then what about other mountains?

Should you lose a single inch of elevation, then all that’s left is to retreat again and again in defeat.

‘Stay cool, and don’t be biased’

But there are more moderate voices too. In a more philosophical piece (in Chinese), “Bytedance and Tencent’s Question of Destiny: What is America?” (57,000 reads, 1,700 reactions) blogger Lu Shihan ponders the contradiction between a US that is a “universal beacon” of freedom and democracy, and a US that is a “capitalist country full of discrimination.”

Both are real, Lu Shihan concludes—but lamentably, the first one disappeared thirty years ago. Now, China must ride out the convulsions of a declining US, but stay true to the spirit of globalization that the US once epitomized.

Globalization still brings us benefits, so we must guard against being biased by narrow-minded populism into confrontation and a new Cold War.

In actuality, everyone basically understands that time is on our side, and as long as we keep steady, what comes next will naturally be a new era. But the next few months are the danger zone, and Trump will probably continue to flail rabidly at US-China relations. We must stay cool and not be biased.

From this perspective, I believe that, be it Bytedance, Tencent, or yet another Chinese enterprise, when shut out and sanctioned at the administrative level, it is still inadvisable to play the nationalist card and intensify confrontation.

Put another way: we’ve shouldered this burden for decades. Don’t lose it at the last moment.

For Zhang Yiming and Bytedance, who’ve set their sights so firmly on globalization, the reality of being caught between two countries must be painful.

Surely, though, the most crushing part is the possibility that they’ll disappoint both.

The US State Department is ramping up efforts to rid American digital networks of made-in-China technology, including apps, cloud services, and telecoms operators, the US State Department said late on Wednesday.

Why it’s important: The program, outlined by the US State Department, signifies a monumental shift in US internet policy, moving away from a free web towards a China-like walled garden.

• It is unclear when and how the plan will be implemented, and whether the State Department has the authority to pressure private companies to enforce the measures.

Escalating techwar: US Secretary of State Mike Pompeo said in a statement that the program, dubbed Clean Network, is the Trump Administration’s “comprehensive approach” to protecting US citizens’ privacy and American companies’ data from “aggressive intrusions by malign actors, such as the Chinese Communist Party.”

• Apps like Tiktok and Wechat are “significant threats” to US interests, Pompeo said during a press conference announcing the initiative on Wednesday.

• In response, China’s Foreign Minister Wang Yin said the US is trying to draw an “iron curtain,” between the two countries and accused the US of “bullying.”

The five fronts: “Untrusted” Chinese technology will be removed from five key areas, Pompeo said.

• The US wants to make sure that Chinese telecom carriers are not connected to US telecommunications networks, or providing services between the US and other countries.
• Pompeo urged US regulator the Federal Communications Commission to “revoke the authorization of China Telecom and three other companies” to provide telecom services to and from the US.
• The plan also seeks to remove untrusted Chinese apps from US app stores. The move is aimed at keeping US data out of the hands of Chinese companies, as well as preventing Chinese censors from influencing content available to US users, according to the statement.
• The State Department said it will prevent Huawei and other Chinese smartphone manufacturers from pre-installing “popular” US apps on their devices. It will also prevent Huawei, “an arm of the PRC surveillance state,” from making such apps available in its app store.
• The US will work to stop Chinese cloud providers like China Mobile, China Telecom, Alibaba, Tencent, and Baidu from storing and processing vast amounts of data from US citizens and companies. The State Department aims to keep sensitive personal information and key intellectual property, such as Covid-19 vaccine research, away from Chinese companies, Pompeo said.
• Undersea cables, the infrastructure that transfers data to and from the US and other countries, will be scrutinized to ensure it is free of Chinese espionage. The US will work with other nations to “secure” underwater cables around the world, according to Pompeo.

Context: Over the past few months, the Trump administration has signaled increasing protectionism against China.

• Following the US’ moves against telecommunications giant Huawei, Tiktok owner Bytedance is now bearing the brunt of the US offensive against Chinese tech companies.
• Amid growing threats of a potential US ban on Tiktok, Bytedance is reportedly attempting to sell the US operations of its short video app to Microsoft. US President Donald Trump said the government is entitled to a “cut” from the deal.
• Meanwhile, risks for Huawei in US-allied countries is growing. The UK announced in early July it would ban the Chinese telecom giant from its 5G networks. France is reportedly making similar moves.
• The Clean Network is an expansion of the Clean Path initiative launched in April, an effort to keep Huawei out of US and allied countries’ 5G networks.

Employees of Microsoft China called out colleagues who had formerly worked at Huawei and Alibaba to stop the “996” work schedule, saying that they were disturbing the company’s work culture.

Why it matters: The conflict returns to the spotlight the controversial 996 practice, where tech company employees are encouraged to work from 9 a.m. to 9 p.m., six days a week.

• A Github post protesting the 996 work schedule among Chinese developers received widespread support on the open development platform in April last year.

Read more: 996 and China speed—Slowing growth in the face of a changing workforce

Details: Microsoft workers in the company’s Suzhou office are taking action against colleagues who previously worked at Alibaba and Huawei, saying that they continue to work the grueling 996 work schedule after joining Microsoft, local media outlet Jiemian reported (in Chinese).

• The former Huawei and Alibaba employees compete to work extra hours and often send messages in work chat groups around midnight, the report said citing Microsoft employees.
• Some Microsoft employees have developed a program to spot people that are online late at night, which sends alerts asking them to stop working, according to the report.
• However, an anonymous user who self-identified as one of the developers of the program posted on Quora-like platform Zhihu, saying the program was developed as a joke and was not intended to be launched.
• The person also clarified in the post that there is no “boycott” within the company, and requested that people stop “spreading rumors.”
• Alibaba and Huawei are known for embracing the 996 work schedule. With nearly everyone following this unspoken rule, no one leaves their seat when working hours end, the report said, citing an Alibaba employee.

Context: China Labor Law dictates that work schedules should not exceed eight hours per day and 44 hours on average per week. Given specific reasons, workers can put in a maximum of three hours per day and 36 hours per month of overtime. “Obviously, the 996 work schedule is illegal,” said state-backed media Xinhua (our translation).

• At the height of last year’s 996 protests, employees at Microsoft have started a petition asking the company to pledge to protect the viral GitHub repository advocating against the Chinese tech industry’s 996 workweek from possible censorship. 
• Jack Ma, the outspoken Alibaba founder, drew criticism after making controversial remarks on 996 last year.  “To be able to work 996 is a huge blessing,” he said in a blog post.

In recent years, handsets have been key to semiconductor industry growth. So when analysts predicted a grim 2020 for the handset markets, things didn’t look great for semiconductor companies either. In December 2019, analysts expected handset sales to drop 2% to 270 million units in 2020.

Predictions for the rest of the year are weaker, but still miles ahead of the handset market. Some analysts expect a 5-10% drop in global chip sales for 2020 as wireless, automotive, industrial, and general consumer electronics sales all fall. Others predict 3.3% growth for the whole year. It might not be huge growth, but it’s growth nonetheless.

If consumer electronics sales are in freefall, what’s keeping the semiconductor industry from dropping further, even giving it hope of growth—and is this the opportunity Chinese chip makers have been waiting for to make their mark on the industry?

TSMC saw sales of every chip it manufactures drop in volume in H1 2020 growth. Except for one, which grew by 12%: high-end server computer chips.

Less phones, more laptops

While the Covid-19 pandemic accentuated the trend of falling handset sales, it put fuel on the fire of cloud computing.

Cloud services were already moving data storage and processing from edge devices, like phones and laptops, to data centers. But then the pandemic and lockdowns made work from home the norm around the world.

This has not only led to an increase in PC and laptop sales, which grew 11.2% year-on-year globally in Q2 2020, but also an increase in the use of video conferencing, distance learning, and video streaming services.

In China, up to 300 million people were working from home in the first quarter of 2020—and tech companies jumped at the opportunity. Virtually every major internet company brought out new apps to deal with this demand.

Baidu brought out its collaboration tool Baidu Hi. Alibaba released DingTalk 5.0. Bytedance created Feishu. Tencent pushed Tencent Meeting (which it had luckily just released in December 2019). Even Sohu and Pinduoduo got in on the action with Little E and Knock. 

This surge in remote working services has led to a surge in internet traffic, which demands more processing power from cloud providers. More processing power needs more servers, and servers are made of chips: general-purpose CPUs and accelerators like graphics processing units (GPUs) and field-programmable gate arrays (FPGAs).

READ MORE:  SILICON | China’s progress on homegrown CPUs

I don’t believe we will see internet usage drop back to pre-pandemic levels. The amount of data collected by individuals and companies has been exploding for a while now, and it will only grow.

The sudden change in human behavior brought by Covid-19, along with increasing workloads and 5G connectivity, represents an opportunity for Chinese companies to break into a market dominated by Intel, AMD, and Nvidia.

Do one thing, do it well

More people working from home doesn’t just mean more servers; it means a greater mix of servers to cater to the varying needs of different applications. Some servers need to be flexible; some need to be low-cost, and some need to have specific accelerators designed for specific applications.

Not only will the world need more chips, but it will need a greater variety of them. This gives Chinese companies the chance to pick a market and develop a product.

Different types of chips have made their way into the server space in recent years and ever increasingly so. General purpose Central Processing Units (CPUs) aren’t suitable for some applications, so they need help from various different kinds of accelerators.

Accelerators are processors to which the main general-purpose CPU offloads some workload. Graphics processing units (GPUs), used for image and video processing, and more flexible field-programmable gate arrays (FPGAs), and application specific integrated circuits (ASICs) are the main types of accelerators in use.

In 2012, Nvidia found that its GPUs, normally used for processing images and video, were great for AI applications. It has ridden the AI wave to now be worth more than Intel. Some applications have required more flexibility, so FPGAs from Xilinx and Intel have also made their way into data centers.

Chinese Jingjia Micro, and recently Zhaoxin, are working on GPUs, but at this stage they are low-end laptop/PC offerings that don’t meet the demands of servers. The same can be said for Gowin, Anlogic, Pango, and others doing FPGAs; Chinese players are still far behind the likes of Intel, Xilinx, and Achronix.

READ MORE: China’s first homegrown x86 PCs are here, but don’t get too excited

Sometimes it makes sense to create a chip for a specific purpose and to do that one thing really well. Enter Application-Specific Integrated Circuits (ASICs).

China’s chip sector has proven to hold its own in at least one type of server ASIC: cryptocurrency mining rigs. Bitmain and Canaan are the world’s top producers of crypto mining equipment. This suggests that it is possible for China to lead innovation in at least one kind of server chip.

But many companies have popped up in China looking to ride the AI server ASIC wave in recent years, and none have found great success yet. Like most industries in China, lots of people jump on the bandwagon and make large profits difficult for one another. Many will die, but a few will survive and prosper.

The old ISA conundrum?

While ASICs are probably the best opening, Chinese companies in the server space now are focused on general-purpose CPUs. Companies working on both types of chips have chosen a variety of Instruction Set Architectures (ISAs).

Instruction set architectures (ISAs) are a set of instructions that control communication between software and hardware in processors. They are owned and licensed by western companies, which means Chinese chipmakers rely on deals with IP licensing firms like the UK’s Arm.

Can Chinese companies even begin to make inroads into a market that is 98% x86 architecture, of which almost 90% is Intel and 10% AMD?

It’s difficult, for all the same reasons why Chinese companies can’t wrangle US superiority in semiconductors.

Whether because of luck, economic planning, or market forces, a couple of companies have emerged around each ISA, spreading China’s bets. Huawei and Phytium are using Arm; Zhaoxin and Montage are using x86 (I consider Hygon defunct); Loongson is using MIPS; and Sunway, something else altogether, possibly developed in-house.

Huawei’s Hisilicon has been by far the most successful in the server CPU space. Some Chinese analysts say it may sell 1.5 to 2 million of its Kunpeng server chips this year. Its Taishan server chip might see its market share grow to 3% share globally by the end of 2021. We all know Huawei’s current troubles, so such predictions aren’t exactly watertight.

One way out of the ISA conundrum, as I’ve written before, is using the RISC-V open-source architecture. Huawei and others are jumping on the bandwagon, trying to develop high-performing chips using the free-to-use architecture, and should continue to. It won’t be a fast transition.

READ MORE: China’s chipmakers could use RISC-V to reduce impact of US sanctions

But when it happens, it will remove one key weapon from the US arsenal. The US won’t be able to block Huawei and other Chinese companies from getting their hands on the fundamental architecture.

However, even if one of them created a CPU, based on any of these ISAs, that was superior in power, performance, and area, there are other barriers to entry.

Snatching some of the global market share is not just about having a great performing chip. The software, applications, standards bodies, etc. create an entire ecosystem that can help customers integrate, optimize, and get to market faster.

Huawei has tried to create such an ecosystem by opening up OS source code, compilers, tools, etc. it has done better than any other Chinese company, but still relies on the Arm ecosystem.

Too many cooks

Whether we like it or not China is looking to design and manufacture homegrown chips to replace US imports, and server chips are key to this. The stability and growth in this market means it’s ripe for investment, even if barriers to entry are high.

Making server chips is a long and painful process. But the Chinese companies listed above have identified the cloud as an opportunity and have been investing in it.

One extreme example of trends in China’s server chips industry came from Tencent earlier this year. The Shenzhen company announced it would buy 1 million servers over the next five years, spending around $70 billion.

Domestic demand for server chips will only grow in the coming years. With government preference for domestic chips in this industry and a need for custom accelerators, it could be one of the better semiconductor verticals for Chinese companies to build a customer base in.

However, like many industries in China, there is increasing risk of over-fragmentation, which will make it difficult for everyone to make solid profits. Inspur and Sugon, two leading Chinese server companies, recently set up their own chip divisions, adding to market fragmentation. While I doubt they will start with CPU design as their first foray, it might be coming in later years.

It remains to be seen if Chinese chip makers can compete internationally. But increasing revenues from China will give them better footing to go about global business development, especially in China-friendly countries.

Chinese companies need to pick their fights. Competing in the general-purpose CPU space is an uphill battle. RISC-V could provide a long-term self-reliant option, but dominant players Intel and AMD are strong competition.

Custom ASICs for specific tasks is where China already has plenty of talent and companies that are up to the task. While it would be nice to see extra competition in the GPU and FPGA space, Chinese companies here face the same barriers as those creating general-purpose CPUs.

Most importantly, ecosystems need to be built. It is a difficult and time-consuming endeavor. Even a recent SOE I met with preferred to use Intel, simply because he understood it; it works, it’s mature.

With this mindset, even grabbing the domestic market is a far cry from where we are now. The government needs to step in and use “Made in China” incentives.

China has talented engineers in the ASIC and FPGA design space, but there are simply too many companies for any one of them to have the economies of scale and R&D spend to truly compete. Consolidation and collaboration are needed if Chinese design companies are going to seize the server opportunity.

The French government has told telecoms operators to avoid equipment made by Huawei, warning that licenses granted for the Chinese company’s gear will not be renewed once they expire, Reuters reported Wednesday, citing three sources.

Why it matters: France will effectively phase out the Shenzhen-based company’s equipment out from its next-generation 5G networks by 2028, following a similar decision by the United Kingdom this month.

Details: The French National Cybersecurity Authority (ANSSI) told a French newspaper this month it was urging telecoms operators not currently using Huawei equipment to avoid switching to it, though it would give licenses that could be valid for three to eight years.

• Operators were told by French authorities during informal conversations in recent months that licenses granted for Huawei gear would not be renewed after they expire, Reuters reports.
• The bulk of approvals for Huawei equipment were for three to five years, while most of those for equipment from Swedish company Ericsson and Finnish company Nokia received eight-year licenses, the story’s sources said.
• The restrictions would amount to a de facto phase-out of the Chinese company’s equipment within France’s 5G networks by 2028, said the sources.

Context: Following years of pressure from the United States, more European governments are moving to exclude Huawei from 5G networks.

• The British government ordered telecom operators last week to remove existing Huawei equipment from their 5G networks by 2027, and banned Huawei gear from the country’s 5G network rollout.

READ MORE: “Five eyes” look in different directions on Huawei

Huawei said Tuesday the UK’s decision to ban the Chinese telecommunications equipment maker from its 5G networks was “disappointing” and urged the country to “reconsider.”

Why it matters: The British government said that banning Huawei gear was due to “uncertainty” around the company supply chain. The company argued that it was a “politicized” decision.

Details: Huawei urged the British government to reconsider the ban announced Monday on the company’s equipment from the country’s 5G network rollout, said Huawei in a statement to TechNode on Tuesday.

• “It threatens to move Britain into the digital slow lane, push up bills and deepen the digital divide,” the company said.
• The UK government also ordered telecom operators to remove existing Huawei equipment from their 5G networks by 2027, citing a US ban on Huawei in May that could bar the company from the global semiconductor supply chain.
• “Given the uncertainty this creates around Huawei’s supply chain, the UK can no longer be confident it will be able to guarantee the security of future Huawei 5G equipment,” Digital and Culture Minister Oliver Dowden said on Tuesday.
• Huawei, however, said the UK’s decision was “about US trade policy and not security.”
• “We remain confident that the new US restrictions would not have affected the resilience or security of the products we supply to the UK,” the company said.

Context: A new US regulation announced by the Department of Commerce in May requires companies around the world to obtain licenses for sales to Huawei of semiconductors made with US technology, potentially cutting the company off from global chip manufacturing. 

• The company sources critical chips for its smartphones, 5G base stations, and other devices from global semiconductor makers such as Taiwan’s TSMC and Win Semiconductors, and South Korea’s Samsung Electronics.

Huawei said Monday its revenue during the first half of the year grew 13.1%, a significant slowdown from the same period last year as the company faces stricter sanctions from the United States.

Why it matters: The Shenzhen-based telecommunications gear maker’s business in the first six months of the year was hit by a double whammy—a new round of US sanctions imposed in May and the Covid-19 pandemic that has disrupted the global economy.

• “The complex external environment makes open collaboration and trust in global value chains more important than ever,” Huawei said in a statement Monday.

Details: Huawei booked RMB 454 billion (around $64.9 billion) in revenue in the first six months of the year with a net profit margin of 9.2%, the company said in the statement.

• Huawei’s consumer business earned RMB 255.8 billion, while its carrier and enterprise units reaped a respective RMB 159.6 billion and RMB 36.3 billion, the company said.
• Second quarter revenue rose 22.7% year on year, according to TechNode’s calculations based on stated data.

Context: The same period a year earlier, the company reported 23.2% year-on-year revenue growth, before the impact of a May 2019 US blacklisting that sought to cut the company off from American technology. Huawei touted the growth as proof that US sanctions had a limited impact on its business.

• The ban took effect in May after several reprieves. Before that, some of Huawei’s important American partners such as Google—which provides commercial licenses to millions of Huawei’s Android-powered smartphones—had already terminated cooperation with the company, dealing a blow to its consumer business, its biggest source of revenue.
• In May, the US Department of Commerce announced a new regulation requiring companies around the world to obtain licenses for sales to Huawei of semiconductors made with US technology, an upgraded version of a May 2019 ban that applied only to American companies.
• The new regulation could potentially cut Huawei off from the global semiconductor supply chain. Affected Huawei suppliers include Taiwan Semiconductor Manufacturing Co., the world’s largest contract chipmaker which produces high-end chip designs for Huawei; Taiwan’s Win Semiconductors, which makes Huawei’s radio frequency chip designs; and South Korea’s Samsung Electronics, which ships memory and storage to Huawei.
• Huawei had reportedly started shifting some production of its chip designs from overseas contract makers to domestic ones such as Shanghai-based Semiconductor Manufacturing International Corp., but experts believe the homegrown alternative is too backward in technology to supply the cutting-edge chips that Huawei needs.

China is set for its biggest stock sale in a decade when homegrown chipmaker Semiconductor Manufacturing International (SMIC) debuts on Shanghai’s Nasdaq-style STAR Market at the end of this month.

Backed by heavy subscriptions by mainland investors, the Hong Kong-listed company could raise as much as RMB 53.2 billion (around $7.6 billion) in a secondary listing on the Shanghai bourse, potentially the biggest in mainland stock markets since Agricultural Bank of China’s RMB 68.5 billion initial public offering in 2010.

SMIC is just the latest example of China’s chip funding fever. A report by Nikkei Asian Review says Chinese chipmakers have raised around RMB 144 billion this year from equity markets, already twice the amount of money they raised in the whole of 2019.

Shanghai-based SMIC is China’s largest contract chipmaker. It’s a solid division II team, manufacturing reliable midrange chips mostly for domestic customers. It lags a few years behind the cutting edge: SMIC is still inching towards 7-nanometer chip production while Taiwan Semiconductor Manufacturing Co. (TSMC) has been producing them since 2018. But the company’s 14-nanometer chips are not good enough to supply many domestic needs, such as Huawei’s most advanced Kirin chips. 

The on-going race between China and the United States for technology supremacy has given SMIC its chance at the major league: US sanctions on Huawei could force the world’s largest telecommunications gear maker and second-largest smartphone maker to move all its chip production from TSMC to SMIC. The state is ready to pour billions into the company’s effort to master cutting-edge production. Shares in SMIC have gone up 215% from the beginning of this year, driven by increasing domestic demand, favorable policies, and the dual listing plan itself. It’s a huge opportunity—but a daunting challenge.

The company said it plans to spend 40% of the proceeds of the Shanghai stock offering to help produce 14-nanometer or higher-end chips, and 20% will be put into research and development.

But to become a global leader, experts suggest, SMIC will need more than money. 

Money from the state—and more from the market

Since it was founded in 2010, SMIC has enjoyed generous support from the state. In the same month it announced the secondary listing plan on the Shanghai bourse, a state-backed industry fund injected more than $2 billion into a SMIC chip fabrication plant. 

Years of state support have put China in the fourth spot on global wafer capacity ranking in 2019, according to semiconductor market research firm IC Insights. 

China is known for its lavish investments to boost industries deemed strategically important. In the semiconductor sector, the well-known National Integrated Circuit Industry Investment Fund, or the “Big Fund,” underwrites chipmakers. The fund has gathered a total of RMB 342.7 billion from the finance ministry, state-owned enterprises, and local governments. 

Read more: VC roundup: State-backed ‘big funds’ manage 60% of China’s VC/PE money

In addition to its official goal (in Chinese) of “investing in chip manufacturing, designing, and promoting mergers and acquisitions,” the fund is also expected to provide “guidance” to get private capital into key sectors.

To raise really big money, SMIC and the Big Fund count on the markets. In 2019, investable assets held by Chinese residents that can be put into the equity market were RMB 29 trillion, according to the China Chief Economist Forum (in Chinese), a Shanghai-based think tank, while the entire national budget (in Chinese) for guidance funds was RMB 2 trillion in 2019.

The STAR Market on the Shanghai Stock Exchange also shows a strong preference for semiconductor firms. Of the 122 stocks listed on the board, around 20 are from the semiconductor sector. The board, known for a meticulous pre-listing review process that can take up to six months, took only 29 days to go through SMIC’s application.

“The Big Fund has definitely achieved its goal to guide private capital into the semiconductor sector, and I think the effect is significant,” Fang Jing, chief analyst at Cinda Securities, told TechNode.

“Thanks to the push of the Big Fund, the proportion of total capitalization of semiconductor firms in the A-share market’s electronics sector grew to approximately 30% from just more than 10% a few years ago,” he added. “It is no exaggeration to say that the past two years have been a feast for semiconductor investments.”

Money may not be enough

Beijing’s expectations are very high for SMIC. According to the Made in China 2025 plan, a government initiative announced in 2015 aiming to boost the high-tech sector, China wants to produce 70% of chips it uses by 2025.  With 18% of the domestic market (in Chinese), SMIC is the only company that’s even on the road to this target.

The target seems more urgent now in the context of escalating US-China economic conflicts. The Trump administration has already blocked Huawei’s access to its technology and machinery and would potentially cut the company off from the global semiconductor supply chain.

But despite heavy investments from the government and private investors, experts predict China will fall far short of the goal of semiconductor self-sufficiency by 2025.

A May report by IC Insights predicts that China will produce only 20.7% of chips it uses in 2024, growing only 5% from 2019.

China not only needs more chips—it needs better ones. SMIC is “generations behind” TSMC, Alex Capri, visiting senior fellow at the National University of Singapore Business School, told TechNode in an interview in May.  SMIC, one of the country’s most sophisticated chipmakers, mainly produces 14-nanometer wafers, while the most edge-cutting chip fabrication technology is now 5-nanometer. For Huawei, this means there is nowhere to buy cutting-edge chips in the domestic market.

In addition to closing a capital gap, China also needs to narrow the talent gap in the semiconductor industry to catch up with the bleeding edge of chip designs, said Fang of Cinda Securities.

China faces a talent shortfall of around 300,000 people in the semiconductor industry, Yu Xiekang, vice president of the China Semiconductor Industry Association, told local media in 2019.

“It should start with education because you can’t always poach talents from overseas. We need not only technology self-sufficiency, but also education self-sufficiency,” Fang said.

Clarification: This post has been updated to clarify the attribution of a quote in the last paragraph.

New Zealand and Canada face a dilemma as the US pushes them to ban Huawei from telecoms networks, national security experts from Five Eyes countries said in an online discussion held by Canadian research organization Conference of Defence Associations Institute on June 9. 

Smaller countries in the US-led intelligence alliance are trying to avoid being entrapped in the conflicts between the two superpowers while keeping their relations with the US, said Joe Burton, senior lecturer at the University of Waikato’s Institute of Security and Crime Science, during the online panel. Representatives of four out of the five countries participated in the panel, with a UK expert canceling.

The Trump administration has waged a years-long campaign against the Chinese hardware giant, asking allies to ban its telecoms equipment and attempting to cut off its access to key technology. Most recently, the White House moved to cut the Chinese telecommunications equipment and handset maker off from global chip manufacturing. 

The United States has long warned of national security risks associated with Huawei’s equipment. The Shenzhen-based telecoms giant could spy on other countries’ telecommunications at Beijing’s behest, Washington has argued.

Around the world, some US allies, like Japan, have responded with restrictions of varying degrees on Huawei equipment.

The UK has sided with the US and plans to phase out Huawei products in the next three years. Australia excluded Huawei equipment from its 5G networks in 2018.

But Five Eyes members New Zealand and Canada have yet to come up with comprehensive policies on Huawei.

‘The door has been left ajar’

New Zealand placed restrictions on Huawei equipment in its 5G rollout, but “the door has been left ajar for [the company’s] involvement in the future,” said Burton.

The Pacific country doesn’t have an official ban targeting Huawei equipment in its 5G network. However, in 2018, the country’s intelligence agency rejected telecoms company Spark New Zealand’s request to use 5G gear provided by Huawei, citing concerns about national security.

In November, Spark named again Huawei as one of its preferred 5G vendors and Wellington has yet to decide whether to approve the new plans.

As a small state with considerable dependence on Chinese goods and markets, New Zealand doesn’t have “the capacity necessary to absorb economic shocks like other countries do,” said Burton.

Burton said that New Zealand’s current policy on Huawei shows they don’t want to get involved, and even entrapped, in US-China conflicts. Burton used entrapment, a term describing countries dragged into wars they don’t want to fight, to refer to the scenario that New Zealand is avoiding.

“We are afraid of entrapment…I think there is a new form of technological entrapment which we should be aware of, and the tensions in the China-US relationship over technology and industrial policy have adverse effects on us which we are keen to avoid,” said Burton.

Canada balances security and diplomacy

Canada hasn’t made a decision on whether Huawei’s involvement should be allowed in its 5G networks, despite warnings from its own military against Huawei equipment, said Richard Fadden, a former director of the Canadian Security Intelligence Service, during the online discussion.

The US-China ongoing diplomatic dispute over the arrest and possible extradition of Huawei executive Meng Wangzhou makes things even more complicated for Canada. Wanzhou was arrested by Canadian authorities in Vancouver in 2018 over alleged sanction violations, at Washington’s request. British Columbia courts have yet to decide whether she will be extradited to the US.

Meng’s arrest plunged Canada’s relations with China into their darkest period in decades. Within a month of Meng’s arrest, China detained, and then formally arrested, two Canadians and halted key agricultural imports from the country. Beijing has threatened further retaliation if Canada bans Huawei from its 5G networks.

But this tit-for-tat diplomacy might not do much to sway Canada. The amount of harm that China can do to Canada is “limited,” said Fadden.

“Our country would not be materially hurt in the medium to long term if we said no to Huawei,” said Fadden, who is also a former Canadian national security advisor. 

But Canada could also see reprisals coming from its neighbor and largest trading partner. The US is prepared to reassess its intelligence-sharing arrangement with Canada if Huawei is allowed to participate in Canada’s 5G rollout, the Canadian State Department said earlier this month.

However, the country has long insisted on an independent approach towards Huawei. The country’s industry minister Navdeep Bains told local media in March that Canada would not be “strong-armed into a decision” on the Chinese company’s access to its 5G networks.

“We will make sure that we proceed in a manner that’s in our national interest. We won’t get bullied by any other jurisdictions,” said Bains.

Five eyes, five views

The Huawei dilemma is not going away in the near future. Whatever the result of the US presidential election, the country’s policy towards Huawei will not change, according to Timothy Heath, senior international defense researcher at American policy think tank Rand Corporation.

During the online discussion, Heath said the US approach towards China and Huawei is “bipartisan.”

Even within the Five Eyes, security concerns seem to be universal. Patrick Walsh, associate professor of intelligence & security studies at Australia’s Charles Sturt University said the country has been lobbying Washington to ban Huawei equipment even before Trump placed a series of restrictions on the company.

“We’ve seen things like the intelligence law that have come up, which essentially states that even if you’re a private sector company, if the state calls you to help with an intelligence operation, you’re compelled to participate in that,” said Walsh, referring to China’s 2017 National Intelligence Law which requires organizations and citizens to “support, assist and cooperate with the state intelligence work.”

“Huawei is operating in a sector considered strategic by the state and it is clearly subject to direction by the Chinese state,” said Fadden.

A Huawei spokesperson refused to comment on the discussion but cited company founder and CEO Ren Zhengfei as saying the company is willing to sign non-backdoor agreements with carriers around the world to address concerns over its equipment’s potential security risks. 

The company has set up a series of cybersecurity centers around the world, including in the UK, Germany, and Belgium, the spokesperson said.

Can China gain semiconductor independence while the US escalates the “Great Chip War”? “It’s going to be a big hit while China works it out,” TechNode contributor Stewart Randall said at a webinar on May 28, “but given time and money, yeah, it’s possible.” 

Randall discussed the US “Export Ban 2.0” against Huawei with fellow TechNode contributor Jan-Peter Kleinhans at the second installment of the monthly “Tech After Hours” webinar series. With that ban, the US said, “you think you’re ahead of us, but I’m going to prove you wrong,” said Randall, who is head of Electronics and Embedded Software at Intralink.

“It would be really hard for Huawei to go around this ban,” said Kleinhans, director of the Geopolitics and Technology project at the Berlin-based Stiftung Neue Verantwortung. But in the long run, he said, “I don’t think any country, China included, will be held back.”

Fresh out of tricks

Huawei itself might have a tough time with the new export controls, Randall said. They’ve surprised us before—but he “can’t personally see how they could keep on designing” this time without access to Electronic Design Automation (EDA) tools or fabs.

Even a magic trick that evades this round of sanctions may not matter, Kleinhans said. The real question is about the US government’s “direction of travel.” Even if the most recent export ban against Huawei isn’t watertight, we can “probably expect a third or fourth one until they get it right.”

According to him, this isn’t just about the trade dispute anymore, or even previous allegations of theft of intellectual property. “It’s about containment,” he said. 

Randall agreed. “When you have the ability to do this and China is your adversary—why not?”

Huawei’s chip design subsidiary, Hisilicon, will be particularly hurt by the export controls, he said. The company represents the cutting edge of China’s integrated circuit industry and is a point of national pride. Even if Huawei buys more chips from other companies, Hisilicon won’t “have anything to do,” and that would “be embarrassing to China—Hisilicon enters the top 10 in the world, and a few months later it doesn’t exist.”

And in the near future, “if Hisilicon collapses, China can’t make world-beating military tech, doesn’t have access to fabs—that could lead to some kind of pressure on China and a compromise with the US.”

Parallel semiconductor stacks

So in the short- and mid-term, Kleinhans said, the US can certainly block China’s way. But with extra Chinese investment, “in a decade or two we have very different semiconductor stacks.” He and Randall agreed that the most reasonable option would be a “trailing-edge” chip, something “middle-range” in case China got cut off from the rest of the world. 

“Interestingly,” Kleinhans said, “you see a connection between different regions… in Germany and Europe, there’s a fraction of policymakers saying, well, in the public domain, we don’t need the latest and greatest—we need secure and trustworthy ICT systems.”

Building up to independence will be difficult, if not impossible. No semiconductor company today can do anything without US tools or equipment, Randall said. “It’s just how the industry is,” he said, “you could flip it around and say that the US is reliant on Taiwan to make its chips.”

As both speakers said, that independence will come easier in some processes and products than others, and getting there is going to take more than cash. In Kleinhans’ words, “if it was just about money, China would’ve already been successful.” China will need to get smart about how it invests, and how it attracts talent to the industry.

Crisis or opportunity

So who stands to win, and lose, from the Great Chip War?

Expect no winners in the short- and mid-term, Kleinhans says. “Every single dollar you spend there eats away from R&D.” 

But long-term, he sees it as an opportunity for companies to make their supply chains more resilient—not just to buffer against geopolitical crises, but also pandemics and natural disasters.

For US semiconductor companies, life isn’t about to get any easier, according to Randall. Europe, though, has been trying to sit on the fence, and as China moves to exclude US suppliers and move to non-US equivalents, “maybe that’s a good opportunity for others out there when blood is on the streets.”

The Great Chip War isn’t likely to simmer down anytime soon. Both governments will have to decide how much they want to escalate, and if China decides it wants to hurt the US, it could target something else, making the chip war bleed into other industries and products.

Overall, it’s bad news for an industry that depends on global supply chains and distribution of labor. “So I’m really wondering,” Kleinhans said, “in 20 years, if you’re a historian looking at this time period, how much innovation got lost in the nitty-gritty details of this tech rivalry?”

On May 15, the world’s largest contract chipmaker announced plans to open a production plant, or “fab,” in Arizona, US. If you know the industry, it doesn’t seem to make business sense: the Taiwan Semiconductor Manufacturing Company (TSMC) will build a 5nm fab in Phoenix, Arizona and start churning out chips by 2024, with a target of processing 20,000 wafers per month. The chipmaker plans to invest $12 billion through 2029.

Because TSMC, maybe better than anybody else, knows that the semiconductor value chain is the football in the US-China competition over tech. And the contract chipmaker is right in the middle of this.

Even though their planned Arizona fab may not make a lot of sense economically speaking, it is an understandable long-term business decision to stay in the US government’s good graces. Especially since both the US Department of Commerce and the US Department of Defense have pushed TSMC for quite some time to open a fab in the United States.

Value chain chokepoints

If the US government perceives a foreign ICT (information and communication technology) vendor as a threat to their national or economic security, they will go to great lengths to curtail this vendor’s technological advances. Huawei is learning this lesson the hard way. The Chinese telecoms giant is the target of several export control measures by the US government.

Even though export controls are rather crude and antiquated policy tools, they are still effective if the market is highly concentrated. This is the case for the semiconductor value chain, and that is why the US government will most likely continue to utilize export control measures to cut Chinese companies off.

READ MORE: Export controls and the rise of US-China techno-nationalism

The global semiconductor value chain relies on a handful of US companies for certain production steps, most importantly electronic design automation (EDA) software and semiconductor manufacturing equipment (SME). EDA software is necessary to design any type of chip, and EDA vendors have close connections to both foundries, such as TSMC or Samsung, and SME vendors to integrate the next generation of production lines into their software. Right now, and for the foreseeable future, there is no way around Synopsys, Cadence, or Mentor Graphics EDA software if you want to design modern chips—and all three are US companies.

The market for SME machines, which foundries such as TSMC must buy to produce chips for their clients, is less concentrated but still largely under US control. Five companies dominate the world market: Applied Materials (US), ASML (NL), LAM Research (US), KLA-Tencor (US), and Tokyo Electron (JP).

In 2019, China’s largest foundry, the Semiconductor Manufacturing International Corporation (SMIC), tried to buy extreme ultraviolet (EUV) lithography equipment from ASML. EUV lithography is necessary to produce any leading-edge chip. But EUV equipment falls under existing export control regimes and so far, the Dutch government has denied the necessary license to sell the equipment to SMIC, partly due to pressure from the US government. Since ASML is the sole supplier of this kind of EUV equipment, SMIC will not be able to produce any chips that are 7nm or smaller.

By focusing on EDA software and SME machines, the US government has found a chokepoint in the industry. With the recent US export control measures, Huawei and its chip design subsidiary Hisilicon cannot use US EDA software to develop chips, and foundries are not allowed to use US manufacturing equipment to produce chips for Huawei.

The US approach only works because both EDA and SME are highly concentrated markets dominated by US companies. For the few suppliers outside of the United States, such as ASML, the US government uses diplomatic pressure to ensure that Chinese chipmakers are cut off from leading-edge technologies. That means, no matter how much funding SMIC can secure, if they cannot buy leading-edge manufacturing equipment, they will not be able to produce leading-edge chips anytime soon and will fall even further behind.

Balancing act

Of course, TSMC knows these chokepoints within the global semiconductor value chain intimately. That is why their move to open a small, financially unjustified foundry in the United States makes perfect sense from a business continuity perspective. TSMC’s commitment to the US can be interpreted as a trust-building measure, providing the company with potential leverage in future negotiations.

The truth is, TSMC’s fab will make very little difference to the US’s strategic position. That is why the US government is not united on this issue. Right after TSMC’s plans were announced, some US senators wrote a letter to Trump criticizing lack of transparency over potential subsidies and tax breaks for TSMC as well as national security concerns. They argue that the US government should instead invest in US semiconductor companies, such as Intel, to strengthen their national industry.

In times of geopolitical uncertainty, both governments and companies are trying to diversify their semiconductor supply chain. Because the semiconductor value chain is highly concentrated, US export control measures are highly disruptive.

Huawei’s latest announcement of collaboration with the French-Italian chipmaker STMicroelectronics is one way for Huawei to lessen their reliance on US-origin technology and get on better terms with European governments.

Meanwhile, Intel has just invested in a Chinese EDA company, potentially signaling to the Chinese government that they support a healthy Chinese semiconductor ecosystem.

While the US government is trying to isolate China’s semiconductor industry and prevent some of China’s national champions from making technological advances, corporations are continuing to make investments in a globalized industry.

Many suppliers within the semiconductor value chain will struggle not to fall victim to the tech rivalry between China and the US. This value chain is highly efficient, but not at all resilient, and every new export control measure the US government implements will be met by the Chinese Communist Party with accelerated efforts for self-sufficiency.

The US on May 15 announced a set of strict new rules intended to cut Huawei off from all advanced semiconductor makers. These rule changes set WeChat abuzz with what to do next.

Proposed responses range from a massive national project to catch up in semiconductor technology, to the rise of a new generation of Chinese young people better equipped to navigate and rewrite the rules of the global governance regime. A disconcerting number of articles suggest, at times as a casual aside, that Huawei’s problems would disappear if China takes control of Taiwan, and with it Taiwan Semiconductor Manufacturing Corporation (TSMC), the world’s largest contract semiconductor manufacturer.

Even the cooler heads propose rather aggressive industrial policies. Ning Nanshan, an anonymous Shenzhen-based commentator on Chinese industrial and economic developments, argues that Huawei will be able to buy cutting-edge chips that are free of American technological components in a matter of years, and that in the meantime Huawei’s business can survive in order to maintain China’s dominance in 5G.

READ MORE: Export ban II: Huawei’s harsher, higher stakes sequel

He outlines the capabilities that Huawei and Chinese domestic fabricator SMIC would need to develop in the next few years in order to produce cutting edge and wholly “de-Americanized” chips, focusing on investments in EDA software, advanced lithography machines, and chip design research. In the interim, he suggests several measures that Huawei could take to shore up its business, and argues that it should use the 120-day buffer period to stockpile chips for 5G bases, even if that means letting the mobile phone business wither:

The U.S. has not attacked Huawei because Huawei is the second largest smartphone maker in the world, but because Huawei is the global leader in 5G technology.Therefore, Huawei’s chip stockpile must be used first and foremost to supply the needs of its 5G bases.

Meeting this demand should not be difficult. The number of base stations globally is in the tens of millions, constituting a small source of demand compared to the billions of mobile phones in the world. Nor will Huawei be building every single base station. Therefore, it is fully feasible to meet the chip demands of 5G base stations. In China, for example, there are expected to be 550,000 5G base stations built in 2020. Huawei can stockpile the millions of chips needed to build these base stations.

It is also important to note that because Huawei already provides 2G, 3G, and 4G services to more than 100 countries around the world, it is impossible for the United States to completely prohibit fabrication on behalf of Huawei. It will at least have to allow for the supply of chips for maintenance of existing infrastructure, lest it pose a threat to the network stability of many countries.

Of course, the mobile phone market is a different matter. Huawei shipped 240 million units in 2019, and supplying these phones with chips will be difficult under present conditions.

Li Guangman, a columnist for the hawkish news commentary site Chawang, advocates a broader approach to countering America’s Huawei ban in an article originally published on his own public WeChat account. He calls on China to meet force with force, dealing America five blows:

First, impose comprehensive sanctions on core American companies;

Second, in light of the fact that the US has threatened Chinese national security, cease the implementation of the first phase of the trade agreement, and stop buying American agricultural products;

Third, take advantage of divisions between America and its allies to form an international strategic alliance for science and technology;

Fourth, put China’s resources into building a national chip industry, ridding ourselves of dependence on the United States;

Fifth, sell off US Treasury bonds as soon as possible…

Right now, China needs the spirit of the “Two Bombs, One Satellite” Program, it needs the spirit of the Battle of Triangle Hill [trans: a Korean War battle remembered as a Chinese victory over the US], and it needs the spirit of self-reliance!

Li, and some of his vocal fans, think globalization was a mistake, suggesting the country was better off under Mao Zedong’s policy of total self-reliance. “It is unfortunate that the path of self-reliance was betrayed by the traitors to our nation. Now we can only count the losses and start on the path again,” the most upvoted commenter wrote.

Other writers think such a response would play into America’s hands.

Big Brother Flower Cat, anonymous author of the popular WeChat account Cat Brother’s Vision, thinks that Trump is playing three dimensional chess. He argues the semiconductor issue is a bait and switch, along the lines of Ronald Reagan’s “Star Wars” missile defense program.

If America’s aim were really to strangle Huawei, he argues, it would not allow a 120-day buffer period in which Huawei could stockpile two years’ worth of chips, and it would freeze Huawei out of the international banking system as it has some North Korean and Iranian banks.

America is not pursuing such an aggressive course of action, the article says, because it is hoping that China will spend hundreds of billions of dollars on semiconductor research—following the pattern of the Soviet Union, which some argue sped up its own economic demise by responding to US missile defense with a costly rearmament program.

By the time China’s investment begins to pay off, chip demand will plateau due to the introduction of new 5G-enabled technologies. He even suggests, rather unrealistically considering Huawei’s vested interest in fostering the growth of the mainland semiconductor industry, that America could grant permits to other companies to sell chips to Huawei after China has sunk massive investments into its domestic industry.

How should China avoid spending hundreds of billions on useless competition, the author asks? By invading Taiwan and getting control of TSMC:

This is an asymmetrical war. This is also a very painful war for us to fight. How do we break out of the position we find ourselves in? I have thought it over for several days, and concluded that the tried strategies will not be sufficient, our only option is:

Use force to break the situation! Reunify the two sides of the straits and take TSMC! Although this method cannot completely solve the problem, it can save us more than five years of catchup time in 5G technology and save a lot of money we would otherwise need to invest. Now I very much look forward to unification coming soon.

This author is certainly out on the extrmes to propose that China seize TSMC as a near term strategy for dealing with the Huawei ban. But many articles note that Huawei’s problems would disappear if unification occurs without going so far as to argue for unification as a means to that end.

Dai Wenchao is a former private equity fund manager who takes historical perspectives on contemporary economic questions through his pseudo-academic social media account. In “Huawei crosses the path and passes through catastrophe,” he looks at a wide range of historical moments, from the Mongol defeat of the Abbasids to the fall of Constantinople, that are used on Chinese social media and in Chinese classrooms to advocate confrontation with the West. The title specifically references two ancient ideas that are popular guides to present day issues.

The first, “crossing the pass,” refers the moment four hundred years ago when a rising Central Asian power crossed a pass near the Great Wall to topple China’s Ming Dynasty and establish the Qing Empire. The Ming Dynasty in this story is, of course, the US, and the idea of crossing the pass suggests that Huawei is coming to a Rubicon moment.

The latter, “passing through catastrophe,” is a Daoist concept that calls on an upstart to grab unprecedented power, even if it means incurring conflict with heaven. Both ideas suggest that Huawei cannot kneel in the face of foreign resistance to its expansion. But the author dismisses attempts to find easy answers to Huawei’s predicament, which he argues is China’s predicament, in earlier cases of rising powers challenging incumbent ones.

Just as Huawei’s rise was enabled by a unique blend of American-inspired management techniques, Chinese values, and a cut-throat growth-oriented “wolf culture” all its own, its continued rise on the world stage will require an entirely fresh approach to making oneself amenable to others’ needs while sticking to one’s guns:

Against the background of its rise, Huawei’s problems are also those that other Chinese companies will face, which will only come into greater clarity over the next twenty years. In the history of Chinese business, no company has walked this difficult tightrope set up by global governance. How should they cross it? The answer will not be found in our twenty-four centuries of history, Daoist magical arts, or in Confucian philosophy.

Although it is insufficient to find the answer to China’s rise vis-à-vis America in the Jurchen Army’s crossing the pass to conquer China, the name “crossing the pass” is notable—Huawei certainly has a “pass” it must cross, and China, too, has a “pass” it must cross. This is what will allow the world to understand us and treat us as we hope. As to how we cross the pass, history does not give us a silver bullet. We need a new generation of Chinese to rise to the occasion.

The problem that Huawei faces is a problem that China faces, and the answer for Huawei is the answer for China.

The debate about how China should respond to the Huawei ban is a microcosm of the broader debate raging about how China should deal with the US. Not all online commentaries are equally bombastic in their approach to the “Huawei problem,” as it is often called. Dai encourages Chinese companies to be more responsive and responsible when dealing with foreign rules. Ning concerns himself more with redoubled industrial policies than punitive sanctions.

But against the backdrop of a fiercely nationalistic discourse, even the most measured voices must reckon with the widespread view that the Huawei ban is just one stage in the same global struggle as the Korean War. Those who believe confrontation can be avoided are on the backfoot.

As the US moves to cut Huawei off from global chip manufacturing, experts say the domestic market doesn’t offer a replacement. Flagship domestic semiconductor fabrication company SMIC can’t handle state of the art products, and itself is vulnerable to being disrupted by a US export ban.

The Chinese telecommunications equipment manufacturer and handset maker could be cut off from global chip manufacturing by a new regulation announced by the US Department of Commerce May 15. The regulation requires companies around the world to obtain licenses for sales to Huawei of semiconductors made with US technology.

Affected Huawei suppliers include Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker that produces high-end chip design for Huawei; Taiwan’s Win Semiconductors, which makes Huawei’s radio frequency chip designs; and South Korea’s Samsung Electronics, which ships memory and storage to the Chinese company.

Guo Ping, the rotating chairman of Huawei, told reporters Monday that the rule would “inevitably harm Huawei’s business to a great extent” and that the company is confident that it would find a solution soon.

“If Huawei finds no way around this and TSMC closely follows the US ban, this would be a severe blow to Huawei’s business—which is exactly what the US administration is aiming for,” Jan-Peter Kleinhans, director of the project IT Security in the Internet of Things at the Stiftung Neue Verantwortung, told TechNode.

READ MORE: Export controls and the rise of US-China techno-nationalism

An onshore option

On the same day the Commerce Department rule was made public, two Chinese state-backed funds announced they would inject a total of $2.2 billion into a domestic chipmaker, Shanghai-based Semiconductor Manufacturing International Corp. (SMIC). The investment is seen as China’s measure to foster chip-making capacity at home amid international supply chain uncertainty faced by Chinese companies. Experts say the company is the only domestic supplier comparable to TSMC.

SMIC also uses US-made equipment, but it is unlikely to cut ties with Huawei at Washington’s behest.

Huawei reportedly had started shifting some production of its chip designs from TSMC to SMIC by April, but the new export ban may drive Huawei to accelerate the transfer. The Nikkei Asian Review reported Monday that TSMC, a key manufacturer of chips designed by Huawei’s Hisilicon, has halted new orders from Huawei in response to Washington’s new rule change.

Generations behind

However, experts said SMIC may not have the capacity or capability to produce chips Huawei needs, including its 5-nanometer Kirin 1100 processor for servers and 7-nanometer Kirin 810 chip for smartphones. Hisilicon, a subsidiary of Huawei, designs those chips.

“SMIC has no production capabilities for anything close to 7-nanometer,” said Kleinhans.

SMIC has the capability to produce 14-nanometer wafers and the company has already started producing the Kirin 710 chipset for Huawei’s low-end Honor smartphones, according to Kleinhans. However, the company currently only has a production capacity of 6,000 14-nanometer wafers per month, which, according to an expert cited by Chinese media The Paper, is nowhere near enough for Huawei.

Losing access to higher-end chips produced by TSMC, such as Kirin 1100 and Tiangang, a 7-nanometer chipset designed for 5G base stations, would leave Huawei unable to make its flagship smartphones and 5G towers.

The $2.2 billion injections from state-based funds will go to a SMIC wafer plant. The company said the investment would help the plant to increase capacity of 14-nanometer wafers to 35,000 per month.

Nomura Holdings, a Japanese securities firm, said in a report recently the defect rate of 14-nanometer chips made by SMIC was around 70% and it would take the company one to two years to demonstrate proficiency, according to Chinese media Caixin.

“SMIC can’t produce anything smaller than 10-nanometer and the cutting edge chips that Hisilicon needs for the Kirin chips is 5nm…It’s generations behind,” said Alex Capri, visiting senior fellow at the National University of Singapore Business School.

Trendforce, a Taiwan-based semiconductor research firm, said in an investment note that the defect rate of 14-nanometer chips produced by SMIC is so high that Huawei will have no choice but to rely on TSMC to produce wafers under 16nm.

Another Huawei?

SMIC is also vulnerable to pressure from Washington, because the Chinese company also uses US technologies to produce chips. American authorities will likely claim it is a violation of the new rules if it continues to supply Huawei.

“About 50% of all the microchips that are made anywhere by anyone involve US manufacturing equipment,” said Capri. An even higher percentage of chips have use American-made design software, he added.

The US hasn’t targeted the Shanghai-based contract chipmaker yet, but a deeper collaboration with Huawei would potentially enrage the US government.

“The US could just put SMIC on a restricted entity list. In which case, you would have the same situation,” said Capri.

New export ban rules announced by the US Department of Commerce could be the blow that finally incapacitates Huawei, cutting off its ability to create advanced semiconductors.

Despite these restrictions, Huawei has continued to use US technology.  

Hisilicon has been able to continue designing chips, relying on existing licenses from key US Electronic Design Automation (EDA) tool companies Synopsys and Cadence. The rules limited these companies’ ability to provide updates, patches, and technical support, but Hisilicon could continue using the software, even if it wasn’t quite up to date.

It also didn’t block Huawei from contracting chip fabrication to Taiwan Semiconductor Manufacturing Company (TSMC), a Taiwanese company, and to Semiconductor Manufacturing International Corporation (SMIC), a Chinese company, both of which use US equipment in their production lines.

The rules did prevent Huawei from offering Google Services on its phones, a significant blow that led to reviews like “a stunning phone you shouldn’t buy.” Indeed, Huawei’s handset shipments have started to suffer outside of China, but overall sales are up due to a huge increase in domestic demand—where Google Services are not allowed anyway.

The US now says it will apply the rules to indirect relationships like TSMC, meaning anyone in the world using US technology or software to design or manufacture semiconductors for Huawei must now obtain licenses from the US.

To directly quote from the briefing, “Huawei benefited from a loophole that allowed it to make use of US electronic design software and manufacturing equipment to continue to produce its own semiconductors. That ends today.”

I’m not a lawyer, and I can’t tell you if this version of the ban is watertight. People are already suggesting loopholes on Twitter. But at the end of the day, TSMC can’t afford to give up on its US market and will comply if its lawyers can’t find a work around. SMIC, as a Chinese company, could be another story.

How does this affect Huawei?

Under these rules, many more suppliers will need a US license to work with Huawei. Fabs owned by TSMC and Samsung will need a license; many semiconductor IP companies, even some non-US ones, will need a license; outsourced design service companies will need a license. One would assume that most of the time the US will deny licenses, or at least hold the threat of denial over China and Huawei if they don’t play ball.

The process of making a semiconductor is complicated and has multiple phases, going from raw materials, to design, to fabrication, to packaging and assembly. The new rules threaten Huawei’s ability to make chips in two central phases, by limiting access to fabrication plants (“fabs”) and preventing the use of EDA tools in design.

And the rules in theory also affect Chinese companies. Just like TSMC, SMIC will have to apply for a license to manufacture Huawei’s chips, as it too uses US equipment. Imagination Technologies may be Chinese owned these days, but it still uses US EDA tools, so its IP couldn’t be used by Huawei without a license unless the company moves away from these tools. All Chinese design service companies, such as Verisilicon, use these tools—there just aren’t any realistic alternatives.

Huawei is said to have prepared by stockpiling a lot of chips, and the rules came with a 120-day reprieve for orders already in place, so Huawei’s next Kirin chip (Kirin 1000), which is in production at TSMC, should be good to go. Production is expected to stop by mid-September, so I imagine Huawei will look to manufacture as many of this chip at TSMC as possible between now and then. Plans for the 5nm Kirin 1100 for next year may have to be scrapped, as only TSMC can do this. Any future high-end designs at 7nm and 5nm will have to be scrapped or moved to another less advanced process.

Of course, even this is possible only if there is a fab that can set that up without US equipment in that time period. There isn’t an obvious loophole.

The fab problem

Not having Google Services is one thing, but if you don’t have a chip you don’t have a product, even for the domestic market.

But Huawei has surprised us before and may continue to do so. It would have known this was coming, and as such will have some contingencies. But it’s hard to conceive of a plan that would cover this situation. Huawei does have a stockpile, but you can’t stockpile chips that haven’t been manufactured yet.

Without loopholes, there are more or less no existing fabs that can work with Huawei for now. In the short-term, this means Huawei has nowhere to manufacture its chips. In the medium-to-long term, there are some answers, if costly ones.

One, TSMC, Samsung, SMIC, and other fabs could create Huawei-specific, or China-specific, production lines with zero US equipment. This would be a huge investment just to deal with one customer, but if US restrictions spread to all Chinese companies it could make sense economically. Even Huawei alone could still make sense to TSMC, which relies on Huawei for 10-15% of sales, but this risks the wrath of the US government. The Chinese government might also push SMIC to set up a non-US line. It announced a $2.2 billion investment into SMIC straight after the US announcement, perhaps to create such a production line, but this wouldn’t replace TSMC’s 5nm and 7nm, and current SMIC free capacity is not enough to deal with orders from Huawei.

Two, Huawei could start fabricating its own chips, like Intel or Samsung. It would have to create its own chip production line free of US equipment. This isn’t something that can happen overnight, and would not be cheap, but would give it more control.

It makes more sense for it to work closer with domestic fabs to create US-free production lines, as it is more economical and lets both companies focus on their core expertise. Either option could result in no longer having access to leading edge process and so a worse product than today.

But either option could fail, depending on what the US does with international equipment makers. While there are non-US manufacturers, they are probably vulnerable to US pressure just as TSMC and Samsung are. Leading Dutch equipment company ASML has previously followed US export rules, and without ASML you can’t have a high-end chip.

The EDA problem

On the EDA front, Huawei’s research and innovation lab, called the 2012 lab, has been rumored to be working on its own set of tools. It is unclear how ready these are, but this could be one area where the company surprises us all.

Read more: SILICON | China’s design tools conundrum

Domestic tool companies already have tools for certain parts of the design flow, but nothing that covers the entire design process from architectural exploration, to RTL verification, to physical design, etc. The Department of Commerce has made it clear it wants to stop Huawei using Synopsys, Cadence, and Mentor tools, and I interpret the following to mean its partners can’t use them either to supply Huawei with design services or silicon IP:

This expanded rule will impose a US licensing requirement, an export-control licensing requirement whenever anyone anywhere in the world uses US technology or software to design or produce semiconductors for Huawei. Companies wishing to sell certain items to Huawei produced with US technology must now obtain a license from the United States.

That brings us to the IP problem. Although Huawei has a make rather than buy philosophy, it does rely on several IP companies that will be affected by the new rules, and these IP companies often use US EDA tools to design their IP. Although Arm cores were previously deemed to be UK origin technology and Huawei could continue to access Arm v8 and v9 architectures Arm uses EDA tools from companies like Synopsys, so could Arm IP be back on the chopping block? 

As I have written before, the new open source architecture RISC-V could be Huawei’s way out here. But while RISC-V is growing fast and is extremely versatile, its ecosystem does not match Arm’s yet, so it will be a few years before it is viable in consumer electronics like handsets.

But it’s not just Arm. There’s a lot of scattered IP in a design: the GPU, communication interfaces, on-chip monitors, etc. In addition to EDA, Synopsys, is also an IP provider. Just one example is its USB IP: Huawei uses Synopsys USB 2 and USB 3 PHY IP, and it no longer can. This IP is not something that can just be designed overnight, and Huawei will need to find an alternative that doesn’t come from a company using US EDA tools.

System-on-a-chip design companies like Hisilicon invariably rely on IP for some parts of their designs, in order to speed up the design process and create the best performing design possible. For some IP, it seems Huawei will have to design itself using a mix of its own tools and other domestic tools, as well as encourage its non-US suppliers to verify RTL using other tools. I spoke to one non-US IP company, whose lawyer confirmed it won’t be hit by the rules and can carry on licensing to Huawei, so there will be some IP suppliers Huawei can still rely on.

Production, EDA, and to a lesser extent, IP are the three main areas of concern, but there are many others, field programmable gate arrays and emulators for chip prototyping being one, 5G test and measurement equipment being another.

Deus ex Biden unlikely

I expect the US tech lobby will be going crazy right now, as many companies are not just losing their Huawei business, but also Chinese business. The first question I often get asked in meetings these days is: “is your IP American?”

The environment in the US is very anti-China. As Trump and Biden attack each other as soft on China, they’re bidding up the confrontational attitude, and I don’t expect that to change any time soon. There may be change rhetorically, but not in US policy goals.

China has, of course, been just as brash and undiplomatic. Its media are calling for a strong counterattack, and the government itself has threatened to use what it calls its “Unreliable Entity List.” That threat hasn’t been made concrete at this time, but Apple, Boeing, Qualcomm, and Cisco are have been rumored as targets.

I have considered some options for Huawei here, but none of them feel very realistic or short-term. The best option would be to find a way to avoid the ban coming into force.

Meanwhile, TSMC will be trying everything it can to help. Losing Huawei’s business would also a huge blow for the Taiwanese fab, and I’m sure it will be taking legal advice as well as lobbying the US government to let it continue its work with Huawei. Its announced fab in Arizona seems not entirely certain, so this investment could be used for leverage in any negotiations.

Will there be enough chips?

A worst-case scenario sees Huawei without enough chips for its next flagship product, and stuck with either nowhere to manufacture chips, or an inferior US-equipment free production line that means future products are no longer world leading, possibly after many months of interrupted production. That’s not even considering a scenario where the company can’t even viably design chips at all.

I’ve focused on phones, but Huawei also needs the chips it designs for all its other product lines: servers, laptops, switches, base stations, AI, cameras, etc. It will have been stockpiling a lot of these, especially 5G base station chips, but it still faces the problems highlighted above across all its product lines.

The company has surprised us before though, and perhaps it can again. But if it can’t, then we can expect a very different Huawei, and US tech can look forward to retaliation in China.

A high-level executive of Huawei said Monday the company will find a solution to a new rule announced by the Trump administration that effectively cuts the Chinese telecommunications equipment maker off from global chip suppliers.

Why it matters: This is Huawei’s first official response to the new rule change made public on Friday. The company said it is still evaluating the impact of the new restrictions.

• The rule, announced by the US Commerce Department, requires companies around the world to obtain licenses for sales to Huawei of semiconductors made with US technology.

Details: The Commerce Department’s rule would “inevitably” harm Huawei’s business to a great extent, said Guo Ping, the rotating chairman of Huawei, in a press conference Monday at the company’s headquarters in Shenzhen. He added that the company is confident that it would find a solution soon.

“The US believes being in the lead in technology is a base of its global supremacy, and that any country with advance technology would pose a threat to its supremacy. Unfortunately, Huawei is taking a lead in the information and communications technology (ICT) sector.”

Guo Ping, rotating chairman

• The world’s largest telecoms equipment maker described the new rule as “arbitrary” and “pernicious,” warning that it would “undermine the entire industry worldwide.”

“Huawei categorically opposes the amendments made by the US Department of Commerce to its foreign direct product rule that target Huawei specifically. This new rule will impact the expansion, maintenance, and continuous operations of networks worth hundreds of billions of dollars that we have rolled out in more than 170 countries”

Huawei spokesman Joe Kelly, reading from a company statement during the press conference.

• The company, which was also added to a Commerce Department “Entity List” a year ago that bars it from sourcing components and technology from US companies, said the new rule would damage international companies’ trust in US technology.

“Ultimately, this will harm US interests.”

Huawei in the published statement

Context: The Trump administration’s new rule, effective Friday but with a 120-day grace period, will block companies around the world from using American-originated equipment and software to design or produce chips that are supplied to Huawei or its subsidiaries.

• Companies can apply for a license to continue shipping those products to Huawei, but the Commerce Department had said the presumption would be to reject those requests.
• Nikkei Asian Review reported Monday that Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world’s largest contract semiconductor maker and a key manufacturer of chips designed by Huawei’s Hisilicon, has halted new orders from Huawei in response to Washington’s new rule change.

The US President Donald Trump extended Wednesday for another year an executive order that bans telecommunications equipment and services from foreign companies that could pose a threat to national security. The order effectively bans US businesses from working with Huawei.

Why it matters: The order, originally signed by Trump in May 2019, is widely seen as a measure against Chinese telecoms equipment makers such as Huawei and ZTE, even though it doesn’t list any countries or companies by name.

• The Federal Communications Commission, the US’ top telecoms regulator, had previously named Huawei and ZTE as “national security threats.”
• Trump had ordered the US Commerce Department to stop transactions “posing an unacceptable risk,” which includes import of gear or services from companies that have close ties to foreign governments and could use their equipment to monitor or disrupt US telecommunications or other infrastructure.

Details: Trump announced Wednesday the extension of the exclusive order signed in May 2019 that invoked the International Emergency Economic Powers Act, which authorizes the president to regulate commerce after declaring a national emergency in response to any unusual threat to the US with a foreign source.

• The US Commerce Department is also expected to extend again a license that allows US companies to keep shipping essential components to Huawei, Reuters reported, citing a person briefed on the matter.
• A representative of Huawei declined to comment.

Context: The Commerce Department added Huawei and 70 of its affiliates in May 2019 to a trade blacklist that bars US companies from doing business with them without government approvals. It gave Huawei a 90-day grace period soon after the ban was imposed. The reprieve was later extended in August, November, and then in February.

• The latest reprieve for the company was announced in March and is set to end on May 15. Meanwhile, the department said it was seeking public comment on whether the license should be further extended.

Chinese tech firms such as Huawei and Bytedance have developed their global presence through aggressive R&D and physical presence in the European Union (EU). Huawei, for instance, filed the highest number of patents in 2017 out of any company in the EU and booked billions in contributions to the EU economy the same year. 

Read more: Europe’s 5G challenge and why there is no easy way out

Europe’s approach to digital governance in privacy and data policy is setting a precedent for regulatory regimes around the world. Data and content regulations, most famously the General Data Privacy Regulation (GDPR), target any companies with customers in Europe. These have wide-ranging implications for foreign companies that do business in the EU. The overarching goal of the GDPR is to protect users’ privacy and return the control of personal data to users. The laws also promulgate the principle of privacy by design, in which transparency and a standard of privacy are non-negotiable pillars of service design and delivery.

For instance, companies need to obtain consent from customers on how their data will be used. Customers also need to be informed of any algorithm that makes use of their data (i.e. ad targeting), as well as business decisions resulting from the analysis of their data. Accordingly, the GDPR places a significant burden on IT and regulatory organizations in artificial intelligence to financial services sectors in the EU.

Compared to similar Chinese cybersecurity laws (in Chinese), the GDPR presents a new governance approach to data sovereignty for Chinese tech companies. GDPR seeks to regulate and safeguard personal privacy, which is a fundamental right under the EU Charter of Fundamental Rights. While China’s cybersecurity laws also cover data protection and network security of personal data, Chinese laws allow the state to access private data for national security purposes. As a result, Chinese companies have to adhere to both sets of regulations as the two different, though not completely competing, governance regimes continue to evolve. 

In addition to GDPR, EU governments have also raised concerns over cybersecurity risk of Chinese tech operations. A high profile example of this is Huawei, a leading ICT producer of 5G networks. Huawei has opened offices across the EU, hired more than 13,000 direct staff, and aggressively recruited research talents. In 2018 alone, the company has invested 2.8 billion euros (about $3 billion) in European operations, and has publicly affirmed its commitment to data sovereignty and local regulations. However, Huawei’s expansionary efforts in Europe have not translated into the adoption of its 5G network. For instance, pressure from the US and security concerns from the country’s intelligence community have resulted in stalled 5G agreement in Germany, which has originally leaned toward a comprehensive trade and commercial agreement (including 5G) with China.

Underscoring the bloc’s security concerns, the European Union has also issued a strict guideline governing “high-risk” suppliers in the opening of its 5G networks. The guideline indicates a protectionist regulatory approach with recommendations such as blocking high risk suppliers from critical parts of the network. It is clear that companies from different digital governance regimes needed to adopt a highly localized regulatory approach to participate in the EU market. 

Because of current geopolitical headwinds, Chinese firms have responded to recent regulatory roadblocks by investing in EU specific compliance and operations. TikTok, for instance, has vowed publicly that the company abides by EU regulations in Europe, and has not shared or removed contents from their platform due to oversight from regulators. The company also plans to grow its EU team up to 1,000 people to develop content policies specific to the EU market. Video content for the EU will also be managed by the local content team, thus creating a separate operation structure to counter any privacy concerns.

As Chinese tech firms continue to develop in a politically charged environment, they will continue to invest in local regulatory infrastructure to satisfy the unique EU digital governance regime. In effect, compliance know-how and infrastructure have emerged as key competitive advantages for firms operating on the continent. More established firms with the ability to invest in long term regulatory relationships in the EU and outlast medium term policy uncertainty will have an outsized advantage over rivals.

Huawei has helped China’s biggest mobile network operator to bring 5G connectivity to the summit of Mount Everest with a base station at an altitude of 6,500 meters.

Why it matters: Establishing 5G coverage on the summit of Mount Everest, the Earth’s tallest mountain above sea level, is a largely symbolic move that nonetheless signals China’s massive 5G buildout plan continues, undeterred by the Covid-19 outbreak.

• At this stage most people can only enjoy the highest speeds of the next generation of mobile internet in metropolitan areas such as Beijing and Shanghai.
• The country expects to provide 5G coverage to all prefecture-level cities by the end of the year.

Details: Huawei has teamed up with state-owned carrier China Mobile to build three base stations along the climbing route of Mount Everest’s north face, the side of the mountain facing China, according to a statement from Huawei on Thursday.

• The highest tower was built in the Mount Everest Forward Camp at the height of 6,500 meters above sea level, which provides the carrier’s 5G coverage to the summit of the mountain.
• Download speed exceeds 1.66 gigabits per second (Gbps) through the 5G network at the altitude of 5,300 meters while the upload speed is 215 megabits per second (Mbps), according to the statement.

Context: Huawei has helped China’s three major carriers, including China Mobile, China Unicom, and China Telecom, to roll out 5G services on Mount Everest to provide coverage to camps along the north-side climbing route.

• Huawei has nabbed the lion’s share of 5G contracts from the three carriers this year, including China Mobile’s nationwide network and a network jointly built by the other two carriers.
• The company had previously worked with the three carriers on mobile network base stations on Mount Everest.
• “We installed almost all the base stations on Mount Everest—even if no one lives there, having a base station out there could save a climber’s life,” Ren Zhengfei, Huawei founder and CEO, said in an interview with Business Insider in May 2019.

Smartphone sales in China fell 22% in the first quarter as a result of the Covid-19 outbreak, according to a report released Wednesday, with embattled Chinese smartphone maker Huawei the only manufacturer that saw a growth in the quarter.

Why it matters: The coronavirus outbreak has accelerated a downward trend in the world’s largest smartphone market.

• Analysts had forecasted a year-on-year drop of 15% to 20% in China’s Q1 smartphone shipments caused by delayed factory reopenings in February.
• The report by market research firm Counterpoint Research also attributed the decline to “dismal sales” in February. But e-commerce platforms, it said, have helped smartphone vendors to recover some of the losses.

“The drastic fall in Q1 China market was primarily dragged down by the dismal sales of smartphones in February (-35% YoY)… However, during the lockdown period in China, local e-commerce giants such as Alibaba and JD.com managed to sustain efficient business operations and delivery services in major Chinese cities outside of Hubei province. For the strong support from these e-commerce players, China’s smartphone sales appeared less negative than our original expectation.”

—Flora Tang, research analyst at Counterpoint Research

Details: Huawei was the only smartphone vendor in the top five that posted positive year-on-year growth of 6% in the first quarter, according to the report. The Shenzhen-based company retained the top spot in China’s smartphone market with 39% share.

• Sales of Apple’s iPhones fell 1% in the first quarter compared with the same period a year ago. The company sold less than half a million iPhones in China in February. However, sales surged in March, rocketing 406% from February to around 2.5 million units.
• Sales of smartphones compatible with 5G networks grew 120% compared with the previous quarter, the report said, as Chinese carriers step up efforts to build more 5G base stations in urban areas.
• “We expect 5G smartphones to rise to account for over 40% of total smartphone sales in China by the end of 2020,” said Mengmeng Zheng, research analyst at Counterpoint.

Context: Huawei said last week its total revenue for the first quarter grew only 1.4% year on year to RMB 182.2 billion (around $25.7 billion). During the same period, China’s GDP contracted 6.8%.

• In a bid to boost sales, Huawei has teamed up with food delivery platform Meituan, allowing consumers to order its smartphones and tablets and receive them within an hour from flagship stores.
• Observers were not optimistic about China’s smartphone market over the long term. According to a recent report by market research firm Strategy Analytics, 37% of Chinese consumers have delayed plans to upgrade their handsets.

In partnership with

Editor’s note: This article is first published on TechNode Global by Shi Hui Tan in partnership with Huawei Assistant. We believe in transparency in our publishing and monetization model. Read more here.

Huawei recently showed off new, Asia-specific content that’s just rolled out to Huawei Assistant.

Keen to give it a whirl, TechNode’s editor, David Cohen, gave a review of the Chinese version of Huawei Assistant and Huawei Ability Gallery at our Shanghai office while our TechNode Global (Singapore) country manager, Shi Hui Tan, visited a Huawei store in the city-state to check out the international version.

If you can’t play the video above, click HERE.

Huawei is facing a big challenge outside of China where, as was reported in 2019, new versions of its smartphones lose access to popular applications and services including Google Play, Google Maps and the Gmail app. 

To overcome this, Huawei is launching its own version of these, including the revamped Huawei Assistant and the new Huawei Ability Gallery. It’ll be interesting to see if the big-name Southeast Asia apps will sign up for the Huawei Ability Gallery – it’ll be a crucial factor for Huawei to stand up against the competition. 

China Unicom and China Telecom have given the majority of their 5G base station contracts to Huawei and ZTE. Combined with previous contract awards from China Mobile, the two telecoms equipment makers now account for more than 80% of China’s 5G base station contracts.

Why it matters: The contracts of the three major carriers show that state-owned telecoms firms have a strong preference for homegrown players in the buildout of their 5G networks even though Beijing has pledged to give foreign companies “equal opportunities.”

“China always sticks to equal and fair principles when purchasing 5G telecom equipment. We never preset the market shares for domestic and foreign enterprises.”

—Miao Wei, minister of China’s top telecom regulator, last year during at keynote speech at the World 5G Conference

Details: Huawei and ZTE were awarded more than 80% of China Unicom and China Telecom’s latest bid for a fifth generation network they are jointly building, according to Chinese media Caixin.

• While the two carriers didn’t reveal the specific shares of each telecoms equipment vendor, the contract shows the rest of their budget for a buildout plan of a total of 250,000 5G base stations this year will also go to Swedish company Ericsson and Datang Telecom Group, a smaller Chinese player.
• Finnish company Nokia, which also participated in the bid, was not awarded anything.
• In China Mobile’s latest tender for the buildout of its targeted 5G base stations this year, Huawei and ZTE were awarded a combined share of 85.9% of the contract, by the number of base stations. Ericsson, the only foreign company granted a tender, took only an 11.4% share. Nokia was also not awarded anything.

Context: China Unicom and China Telecom announced last year that they would team up to jointly build a 5G network to cut costs.

• An investment of RMB 1.23 trillion ($174 billion) is needed to build China’s fifth generation networks, according to China Securities International.
• The three carriers’ combined budget for 5G network buildout in 2020 is RMB 180.3 billion.

Even as the world is in the grip of the coronavirus pandemic, the US and China are locked in an escalating race to control the technologies of the future. This new environment has inspired a philosophy I have described as “techno-nationalism”: mercantilist-like policies, such as export controls, that link a nation’s tech innovation and enterprises directly to its economic prosperity, national security, and social stability.

Going forward, loopholes in existing export controls could prompt stricter measures from Washington, which will come at higher costs for tech companies and continue to disrupt global value chains (GVCs).

For US and other foreign companies, this means two things: first, the US government could close export control loopholes, in particular the so-called de minimis rule; second, the Feds are likely to increase pressure on key suppliers and governments to stop selling controlled technologies to Chinese companies.

Export controls’ impact on value chains

An export control is a regulation put in place to protect national security, promote foreign or domestic policy, and, in some instances, control the export of items in short supply. By itself, an export control is not an export ban, and does not mean that the product in question can never be exported.

Export controls do, however, often mean that you have to ask a government for permission before selling, transferring, or transporting a product to a foreign market. Whether or not a license is required will depend on where the final buyer is located, who the buyer is, and how the controlled item will be used.

A key driver of export controls is the concept of “dual-use,” meaning that a commercial technology could be used for military purposes. In the US, for example, the US Department of Commerce has created an extensive list of dual-use technologies which can be found on the Controlled Commodity List (CCL).

Everything on the CCL is subject to “export controls,” but an actual export license will only be required based on the above “who,” “where,” “what,” and “why” criteria, for each unique instance. For example, the same item exported to China, Japan, and South Korea might only require an export license for China.

The US Export Control Reform Act of 2018 will expand the number of dual-use technologies on the CCL, targeting “emerging and foundational technology” and putting most, if not all, US-China technology transfers at risk of being subject to more export controls and license requirements. This would include things like machine learning, robotics, autonomous vehicles, and additive manufacturing (3D printing), among others.

This means that everything on Beijing’s “Made in China 2025” list will fall under the dual-use umbrella.

Export licenses add a layer of uncertainty to GVCs, and the denial of a license can turn a long-time supplier into an unreliable supplier literally overnight. Export controls also mean that a company’s supply chains will be examined under the proverbial regulatory compliance microscope, adding compliance costs, delays, and risks to previously routine business.

Read more: A Chinese view of AI export controls

Efforts to de-Americanize

Export controls are already costing US firms and businesses. Since being placed on the restricted entity list in May 2019, Huawei claims to have jettisoned all US technology from its P30 Mate smartphone, including radio frequency chips (made by Skyworks Solutions and Qorvo), memory (Micron), and design software and operating systems (Synopsis, Mentor Graphics, and Android).

According to a report by Bloomberg, Huawei has also eliminated US technology from the first 50,000 units of its next generation 5G base stations, turning instead to fabless design subsidiary HiSilicon. Bloomberg reported that this impacted US suppliers Intel and Xilinx.

The ramping up of US export controls—and Chinese companies’ subsequent efforts to decouple from US suppliers—has placed US companies in a precarious position, given their sizable revenues from the Chinese market. Huawei alone purchased approximately $11 billion worth of semiconductors from US firms in 2018.

To put this into perspective, more than 60% of Qualcomm’s revenue came from China in the first four months of 2018; for Micron, over 50%; for Broadcom, about 45%. Broadcom has revised its 2019 revenue estimate down by $2 billion because of the Huawei ban, and overall market uncertainty from the US-China tech war.

It is no surprise, then, that American companies are fighting to maintain their market share.

Two very compelling long-term fears make it very hard for, say, semiconductor firms to write off their Chinese customers . First, once a company loses market share, it becomes nearly impossible to recapture it if foreign competitors can step in to replace them. This is due to the very high switch-over costs and complexities involving semiconductor B2B relationships. A well-ensconced competitor in the semiconductor space is very difficult to supplant. Second, in a sector that must commit ever-increasing resources to innovation, revenue from existing business must be ploughed back into critical R&D activities. Losing that revenue damages future competitiveness.

US firms have therefore been lobbying the US government, through organizations like the Semiconductor Industry Association (SIA), to delay an all-out ban on tech sales to Huawei and other Chinese firms, and to convince the US Department of Commerce to quietly approve export license applications—so far, there have been virtually no accounts of denied export license applications for Huawei.

‘American’ technology

Even though current export controls are hurting US businesses, these rules are not that hard for many suppliers to dodge. In many cases, all it takes is a little creativity with the legal definition of “US technology.”

US export controls apply only to US technology—and whether technology is US is determined by so-called “de minimis” thresholds set out in US Export Administration Regulations. What matters is how much of the value of the product is made up of US “controlled technology.” These thresholds are currently set at 10% and 25% of a product’s overall fair market value, depending on the technology in question.

If a company wants to sell to Huawei, all it has to do is manipulate its supply chain to cut the value of the US content, or to increase the value of non-US made components. This can be done a lot of ways—none of which help US workers or suppliers.

To manipulate the value of non-US inputs, for example, companies can increase the costs of foreign labour, overhead, IP license fees, or the costs of materials. For a product near the threshold, this can be as easy as paying EU factory staff a bit more to raise the value of non-US components.

The de minimis loophole is incentivizing US companies to move operations overseas and has led the US government to consider reducing the thresholds, or eliminating them all together.

So far this has not happened, due to opposition from US companies and trade associations. However, this issue may yet re-emerge.

The next phase

Going forward, the US government could take a much tougher stance on export controls, which could have high costs for many firms. For starters, it could close the de minimis loophole, reducing the threshold to 5% or even zero. This would make it difficult or impossible for some firms to reshuffle their GVCs.

Another increasingly plausible scenario is that the US government will try to exert leverage over third-country companies to cut off sales to restricted entities such as Huawei.

Senior officials at the White House have agreed to new measures to increase pressure on the Taiwan Semiconductor Manufacturing Company (TSMC), the Taiwanese semiconductor foundry which produces microchips for Huawei’s HiSilicon. Under a new proposed rule, foreign firms that use US-made chip-making equipment would have to obtain an export license to sell certain micro-chips to Huawei.

Only a small handful of companies make the manufacturing machines that enable everyone else to produce high-yield microchips in commercial quantities, including TSMC. American companies, such as Applied Materials, Lam Research, and KLA-Tencor, dominate this space. Two other firms, ASML (Netherlands) and TEL (Japan), round out this small, exclusive club. However, because ASML and TEL come from countries with strong historical alliances with the US, Washington has the power to get them to acquiesce to its techno-nationalist agenda.

An uncertain future for export controls

Chinese companies will accelerate their efforts to de-Americanize their supply chains, no matter what happens to US export control policies.

The rise of techno-nationalism will push companies to decouple, ring-fence, and realign their value chains, in some cases pre-emptively and in other cases because of new government constraints.

The US-China technology rivalry, thus, will continue to present tech companies with increased risks and uncertainty well into the foreseeable future.

China’s Huawei reported Tuesday sharply slower revenue growth in the first quarter of 2020 as the company faces both trade restrictions from the US and the global coronavirus outbreak.

Why it matters: The dismal revenue numbers for Q1 provide a picture of how the Covid-19 outbreak has affected China’s electronics manufacturing sector and smartphone market.

• The country reported last week that its first-quarter GDP contracted by 6.8% from a year ago—the first quarterly revenue decline of the country since at least 1992.
• Huawei, however, is expected to gain from China’s massive “new infrastructure” initiative that aims to stimulate the country’s virus-hit economy by pouring trillions of RMB into 5G networks, data centers, and artificial intelligence. 

Read more: China’s ‘new infrastructure’ projects, explained

Details: Huawei’s revenue for the first quarter grew only 1.4% year-on-year to RMB 182.2 billion (around $25.8 billion), according to a company statement published Tuesday.

• The growth rate for Q1 2019 was 39% year-on-year.
• “Huawei’s business is continuing as usual and its overall business results in Q1 2020 are in line with expectations,” said the company in the statement.
• Its net profit margin in the quarter was 7.3%, slightly lower than the 8% margin reported in the same period last year.

Context: Huawei reported 23.2% year-on-year revenue growth in the first half of 2019. This was shown by the company as proof that the US sanctions had a limited impact on its business.

• The Trump administration added Huawei on a trade blacklist in May, barring US companies from exporting to Huawei without government approvals.
• Huawei said in October its revenue growth for the first three quarters of 2019 was 24% year on year.
• The company said earlier this month its revenues for the full year 2019 rose 19.1% to RMB 858.8 billion.
• In an interview with the Wall Street Journal in March, Huawei founder and CEO Ren Zhengfei said the company had lower expectations for its first-quarter revenue but the company’s revenue for the whole year would keep moving ahead.

Chinese telecommunications firm Huawei is shifting production of its in-house designed chips away from a major Taiwanese chipmaker.

Details: The Shenzhen-based telecommunications company is moving its chip production towards Shanghai-based Semiconductor Manufacturing International Corp (SMIC) from Taiwan Semiconductor Manufacturing Co Ltd (TSMC), said a report by Reuters, citing sources familiar with the matter.

• HiSilicon, their chip design subsidiary, has already started telling its engineers to design for SMIC instead of TSMC in late 2019, according to one of Reuters’ sources.
• The company said in a statement the shift was “common industry practice” and that the company “considers carefully issues such as capacity, technology and delivery when choosing semiconductor fabrication plants.”

Context: A federal ban by the Trump administration last May barred American companies from exporting components and technology to Huawei without government approvals.

• The Trump administration is considering to expand the ban to more foreign companies that use US technology, including Taiwan’s TSMC.
• Huawei warned last month of retaliation by the Chinese government if the US ban upgrades.
• “The Chinese government will not just stand by and watch Huawei be slaughtered on the chopping board,” Eric Xu, Huawei rotating chairman, said at a press event last month.

Handset sales in China surged 241% in March compared with the previous month though were still down 23% from a year earlier, according to official data released Monday.

Why it matters: China’s handset consumption has started to recover from the Covid-19 pandemic but its aftershocks continued to weigh.

• The turnaround is partially because local smartphone makers refreshed their handset lineups in March, including Huawei’s P40 flagship and Xiaomi’s budget phone, the Redmi Note 9 Pro. In total, smartphone makers launched 34 new models in March, accounting for 87.2% of the new handsets launched in the first quarter, according to data released by China’s Ministry of Information Industry and Technology (MIIT).

Details: China’s handset sales in March were 21.8 million units including 6.2 million which are 5G compatible, according to the MIIT.

• Apple’s iPhones saw a surge in demand during the month as sales rose 406% from February to around 2.5 million units, according to MIIT data and TechNode’s calculations.
• Total handset sales in the country dropped 36.4% year on year to 49 million units in the first quarter, according to the data.

Context: Despite the rebound in monthly sales, observers were not optimistic about China’s smartphone market over the long term. According to a recent report by market research firm Strategy Analytics, 37% of Chinese consumers have delayed plans to upgrade their handsets.

• “The supply chain and full ecosystem may be back up to speed as we enter Q2, 2020 but it is clear that a significant portion of consumers are not yet ready to return to previous patterns and purchase intentions. Operators, vendors and retailers will have to work extra hard to persuade hesitant smartphone owners that new devices and new 5G services are worth making an investment in relative to other priorities,” Linda Sui, director of smartphone research at Strategy Analytics, said in the report.
• In a bid to boost sales, Huawei has teamed up with food delivery platform Meituan to allow consumers to order its smartphones and tablets and receive them within an hour from flagship stores.

In partnership with

Editor’s note: This article is first published on TechNode Global in partnership with Huawei Assistant. We believe in transparency in our publishing and monetization model. Read more here.

How many apps are there on your phone? And of those, how many do you use pretty much every day?

I’d bet that, apart from games, it’s not that many. So wouldn’t it be useful to have quick access to your most loved and most useful apps in one place, with just one swipe?

How many apps are there on your phone? And of those, how many do you use pretty much every day?

I’d bet that, apart from games, it’s not that many. So wouldn’t it be useful to have quick access to your most loved and most useful apps in one place, with just one swipe?

That’s basically the idea behind Huawei Assistant, which puts your most essential apps and services – like sports results, stocks, and travel itineraries – onto smart cards that are accessible with one swipe.

Huawei says app developers get more views for their content or more clicks for their services by laying them out in cards inside Huawei Assistant. Globally there are 400 million monthly active users of Huawei phones, boosted by shipments last year of 240 million.

This points to the changing face of home screens across the phone industry as laid-out, real-time, and easily accessible content becomes more important. Device makers are betting that people – as they spend more time on personal devices rather than consuming media in more traditional ways – want to focus on their most used apps while also doing less tapping. For example, within Huawei Assistant, a user can see the weather, traffic reports, and upcoming reminders – all the crucial info they need within the next hour or so – in one glance, each ensconced in their own cards, all scrollable on one screen. No need for opening or closing any apps.

The ongoing evolution is so vital to the mobile industry that it already has a name: the “minus one screen.” And Huawei Assistant is a prime example of why it makes sense.

As well as these widgets, this handy screen also has an AI search bar, helping you find items on your phone as well as answers from across the web. Plus, it has shortcuts so you can access your most used actions with just one tap.

To help folks make the most of Huawei Assistant, there’s Huawei Ability Gallery, where you can find a bunch of new apps primed with smart cards.

New content

At a virtual press conference last week for Malaysia’s launch of the Huawei P40 series of phones, the company showed off new, Asia-specific content that’s just rolled out to Huawei Assistant.

One of these is a stocks card from Investing.com, which looks like this:

And this is how it looks on the same Huawei P40 when dark mode isn’t activated:

The smart card is customizable so that it shows the stocks you want to keep an eye on:

Plus, now there’s football results courtesy of the popular 365 Scores:

You can configure your teams to watch, from leagues across the globe.

Coming soon to Asia are smart cards for flight bookings, hotel reservations, taxi-hailing, and food orders.

These Huawei Assistant smart cards are not confined to your phone – they’ll appear on your Huawei TV or tablet as well, if you own those, exactly as you set them up on your phone.

Instant access buttons

Continuing with the theme of customization, Huawei Assistant has shortcut buttons, which appear above the AI Tips, where you can set up four icons for the most important things you need to jump to.

If you’d rather not configure your own, the phone will suggest a few buttons that it thinks you’ll need most often.

You’ll notice a fifth button – that allows you to browse a lot more handy shortcuts to tools and service on your phone and around the web.

Another useful card within Huawei Assistant is the AI Tips one, which shows things like notifications, reminders, or phone usage info.

Plus there’s Newsfeed, giving you real-time and popular news stories based on the language and region settings of your device.

And this is what the AI search bar looks like:

Huawei Assistant is fixing a problem that cropped up as soon as apps went mainstream – that all your useful information and fun content got siloed across numerous apps. Now’s the time to tap less but get more done.

Get more information about Huawei Assistant here.

China’s three major telecommunications operators jointly launched Wednesday a 5G-powered messaging service. The service enables users to send rich communication messages using the next-generation wireless technology.

Why it matters: The feature could pose a big threat to existing instant messaging players such as WeChat by leveraging the huge user base of China Mobile, China Telecom, and China Unicom.

• The three carriers had a combined subscriber base of 1.6 billion as of the end of 2019, which is more than the country’s population.
• The new feature is also likely to remove the barrier of rich communication services (RCS) between iOS and Android devices. The two ecosystems of mobile phones both have their RCS known as Apple’s iMessage and Android Messages. However, they don’t communicate with each other.

Details: The three state-owned carriers published Wednesday a 5G messaging service white paper advocating smartphone makers to support the new function and provided technical details on how to integrate it with their handsets.

• The function is designed to replace current text messaging service with a system that allows mobile users to send text, images, voice messages, and files to their contacts without downloading any additional apps.
• Users can also buy tickets and book flights by sending messages, according to the white paper. Other functions of the service include mobile payment, group chat, and services based on location.
• Smartphone makers including Huawei, Xiaomi, ZTE, and Samsung have announced that their future handsets will be compatible with the service.

Context: The rise of instant messaging services such as WeChat means Chinese telcos are making less revenue from text messages. SMS income for Chinese carriers had been dropping consecutively from 2014 to 2017, but saw a slight rise of 0.02% year on year in 2019, according to China’s Ministry of Industry and Information Technology (in Chinese).

• China in November launched its commercial 5G service. Chinese media has reported that the country boasts 10 million 5G users as of January.
• According to our analysis of Strategy Analytics and Counterpoint data, around 8.93 million 5G phones were sold in China in 2019.
• In 2013, China Telecom and Chinese internet company Netease jointly launched an instant messaging app called Yixin in a bid to challenge the dominance of Tencent’s WeChat. The app allows mobile users to use it without consuming any mobile data, including subscribers of China Mobile and China Unicom.
• However, the WeChat clone failed to colonize WeChat’s market share. The app was only downloaded 60,000 times by smartphone users in February, according to Sensor Tower. During the same period of time, WeChat saw its downloads reaching 4 million.

Huawei, the world’s largest maker of telecom equipment by revenue, released earnings for 2019, saying that it missed a target set internally by $12 billion due to a US trade ban. The company also warned of retaliation by the Chinese government.

Why it matters: After a year of “unprecedented challenges” brought by a US ban on sales of its gear to American companies, the marquee Chinese technology company reported significantly slower profit growth and revenues which missed its own goals by a wide margin.

• Despite the May ban, US suppliers continued to deal with Huawei. Eric Xu, Huawei’s chairman, said in an interview that in 2019 the company spent $18.7 billion with US companies. 
• Its annual earnings report also laid out future growth directions besides 5G: smart wearables and internet of things devices, cloud service platforms and artificial intelligence, and billion-dollar programs that support developers to add to its homegrown ecosystem, in an effort to pose a viable alternative to Android and Apple applications.

“The Chinese government will not just stand by and watch Huawei be slaughtered on the chopping board.”

—Eric Xu, Huawei rotating chairman, at a press event

Details: Huawei reported revenues of RMB 858.8 billion ($123 billion) for 2019, an increase of 19.1% year on year and maintaining consistent top line growth compared with a year ago when revenue rose 19.5% on an annual basis.

• It posted net profit of RMB 62.7 billion, slowing to 5.6% growth year on year compared with 25.1% year on year in 2018.
• Xu warned of retaliatory measures by the Chinese government during the annual report press event, saying “Why wouldn’t the Chinese government ban the use of 5G chips or 5G chip-powered base stations, smartphones and other smart devices provided by American companies, for cybersecurity reasons?”
• The carrier business grew 3.8% year on year to RMB 296.7 billion and accounted for 34.5% of the company’s total revenue, falling below 40% for the first time. Last year, it made up 40.8% of total revenue.
• Its consumer business earned RMB 467.3 billion during the year, making up more than half of total revenue (54.4%).
• Xu said that the US sanctions meant that its consumer business lost $10 billion in overseas markets. It remains the fastest growing of Huawei’s three major businesses. 
• Huawei shipped 240 million smartphone units globally, up 16.5% year on year compared with 35% year on year in 2018.

Context: The US banned its companies from doing business with Huawei in May but has since issued temporary licenses to allow Huawei to continue. It extended on March 10 this license again to May 15.

• Huawei said that its RuralStar base station solutions allow more than 40 million people living in remote areas to have mobile internet coverage. That includes a quarter of the smallest wireless carriers in the US on which many of the country’s farmers rely.   
• Huawei’s executives said that Covid-19 has affected its plans to build 5G infrastructure in Europe and China, though domestic construction may ramp up since the outbreak seems to be under control in China. 
• Much of Huawei’s manufacturing is based in southern China which means its supply chains are less affected by the Covid-19 lockdown in Hubei, central China.

Tencent has signed a deal with Huawei to set up a laboratory to develop a cloud gaming platform, the Chinese gaming giant said in a statement Friday.

Why it matters: Tencent is the world’s largest gaming company and it is actively building up cloud gaming services, a function that runs games on remote servers and streams them directly to a user’s device.

• While cloud gaming can significantly lower players’ hardware requirements, it needs a high-speed internet connection to reduce latency and powerful streaming enterprise game servers like 1g serverhost to boost experience.
• Shenzhen-based Huawei is the world’s largest telecommunications equipment maker and its products have been widely used in China’s 5G rollout. The company is also a major server manufacturer with a 5.1% share of the global server market in the fourth quarter, according to market research firm IDC.

Details: The collaboration will leverage the computing power of Huawei’s Kunpen processor to build Tencent’s cloud gaming platform, GameMatrix, the company said in a statement (in Chinese).

• The two companies will explore more possibilities in areas such as artificial intelligence, augmented reality, and virtual reality based on the platform, Tencent said.

Context: Tencent launched its cloud gaming service, Start, in March 2019. The company started to beta test popular video game “Fortnite” on the platform in December.

• Huawei launched in June its cloud gaming management platform featuring 5G integration.
• Netease, another Chinese gaming giant, started in December beta testing its cloud gaming service, which is currently limited to mobile titles and runs on 4G networks.

This week, our source was Ran Caijing, where we came across an overview of the effects of the Covid-19 epidemic on Chinese tech companies—especially smartphones. Below, we summarize the key points of the article for TechNode members. TechNode has not independently verified the claims below.

The epidemic is raging around the world. Which Chinese technology companies are most affected?

Jin Yufan, Su Qi, and Tang Yahua (edited by Wei Jia)

Ran Caijing, March 13

Outline

While Chinese domestic epidemic peak has passed, Covid-19 has begun to erupt worldwide, forcing the World Health Organization to adjust the situation to a “global pandemic” level.

Affected by the epidemic and other factors, global financial markets have melted down. The US stock market has collapsed three times so far, twice this week. Affected by the broader market, star Chinese stocks fell across the board: Alibaba fell 6.94%, Jingdong fell 7.87%, Pinduoduo fell 6.42%, NetEase fell 7.88%, Baidu fell 8.55%, and Ctrip fell 5.95%.

The impact of the epidemic on the global economy has gradually spread from the demand side to the supply side. China, and the United States, Japan, South Korea, Germany, Italy, Spain, Iran, and other countries with severe outbreaks are mostly important exporting countries.

Business alarms and bets

The epidemic has sounded alarms for different industries:

• The retail consumption expected by tourists has vanished, creating a global alarm for businesses in the industry. 
• Manufacturers of smartphones have bet heavily on the 5G replacement wave this year, but the consequences of supply chains disruption are still difficult to predict. 
• Cross-border e-commerce and logistics capacity have been disrupted. 

Tourism

According to the United Nations World Tourism Organization (UNWTO), the global outbound tourism market in 2018 was worth $1.45 trillion. Chinese tourists spent more than $277 billion abroad, close to one-fifth of global outbound tourism spending. However, right now the global tourism industry is practically stalled, while Chinese domestic travel service providers are also suffering unprecedented hits.

Bigger companies can live longer. Those who already struggle with capital may die, especially if the emergency carries on for two or more months. 

There is not much support for SMEs in terms of policies. The rent and labor costs cannot be reduced, with the only solution being layoffs

According to Ran Cai Finance, when Ctrip was at its worst situation, domestic orders losses were at around 80%. Now they are gradually recovering, but international orders present the most difficult recovery in the short term. 

That’s bad news for Ctrip since outbound travel, international flights, high-star hotels, and other businesses may not account for the largest number of people, but represent a larger proportion of revenue and profits.

Smartphones

Even though Chinese factories are resuming work and retail stores are reopening, the demand side continues to be suppressed.

The entire mobile phone industry is not driven by the supply chain, but by the market. As long as the consumer demand and consumption level in the market are still there, retail growth will occur after the epidemic.

Recently, the American market research company Strategy Analytics predicted that global smartphone shipments in 2020 will be 10% less than expected, and China’s smartphone shipments will be 15% lower than expected.

As the world’s second-largest smartphone manufacturer, Huawei has cut its 5G smartphone shipments by 20% this year. Apple also announced in February that it was unable to meet previously released revenue expectations in the first quarter.

Supply problems

The impact on the supply side is greater. A mobile phone requires at least 300 parts. Even though basic parts are produced domestically, key components are still subject to foreign companies in the United States, Japan, and South Korea. In addition to Huawei’s own Kirin chip, other mobile phone manufacturers commonly carry Qualcomm’s chips, whereas the memory comes mainly from Korean and Japanese companies. The current epidemic situation in these countries is no less serious than in China.

However, the crisis on the supply side of mobile phone manufacturers may be an opportunity for domestic suppliers. In fact, the lower-ranked supply companies that were originally used as backup solutions in China may have the opportunity to make their debut on the main chain. Ultimately, if the epidemic lasts for a long time, it may break the current mobile phone supply chain layout.

Cross border e-commerce

According to Chinese Ministry of Commerce data, as of February 20th, the number of masks imported was more than 12 million units. Cross-border e-commerce platforms and enterprises of 59 cross-border e-commerce test zones have imported nearly 1 million sets of protective clothing.

The categories that e-commerce platform users pay most attention to during the epidemic are masks, disinfection products, and health products. With the epidemic becoming stable in China, the demand for e-commerce platform users to purchase protective masks has stabilized.

The global epidemic is urgent, and the supply chain, logistics capacity, and pace of resumption of international business on the e-commerce platforms have been disrupted.

The spread of the global epidemic will inevitably affect the operation of global logistics, which will be a major challenge for foreign trade in the future, but what is really affected is the deep participation in overseas local procurement and warehousing.

Events

The interruption of global personnel flow, the lack of a large number of face-to-face exchanges, and the cancellation of exhibitions have led to low communication efficiency and limited global exchange of innovative ideas, which will adversely affect the development of technology products, software and hardware. However, the occasion may also force the introduction of more advanced communication methods with the use of 5G, AR, VR, holographic projection, and sensor fields.

Online services

The obvious winner in the epidemic is the gaming industry. The market share of Chinese games is already the biggest in the world and, thanks to the pace of globalization, the expansion of Chinese game companies has gone very fast. Companies such as Tencent and FunPlus have achieved very good results in global competition and in the event of the outbreak they will continue to grow in the global market.

Companies that focus on games going overseas are likely to replicate the game boom during the Chinese New Year. With the large-scale isolation in many places around the world and the decrease in offline entertainment, games will get a big explosion in players.

Besides gaming, recently the price of study packages of online education companies has increased, and the visit traffic has more than doubled compared with the same period last year.

Another bright side may lay in the fact that new advanced technologies such as artificial intelligence, Internet of Things, big data, 5G, and cloud computing have performed well in many aspects of the epidemic. Big data and cloud services are effective assistants for epidemic control; 5G cloud intelligent disinfection, temperature measurement and delivery robots have also quickly joined the fight against the epidemic; unmanned operations have greatly reduced the probability of contact infection and cross infection and improved the efficiency of medical staff.

Between the lines

From a Chinese perspective, PMI has fallen to a historic low, even lower than the 2008 financial crisis, with the pain much more severe than during the SARS period. Looking at the world, the global PMI is also declining sharply. Therefore, for the Chinese domestic market, in addition to the export of epidemic prevention-related supplies, the overall probability of overall trade exports in the second quarter will be greatly affected.

However, if the epidemic situation is effectively controlled within two months, China’s technological innovations such as e-commerce, especially the fresh food e-commerce industry, online education, games, etc., as well as enterprise (government) information-based tracking, will usher in fast growth.

Finally, even though the impact of the epidemic on the global Internet industry is minimal, the impact on the physical industries is long-lasting, even fatal to some companies. Because of the uneven climate and healthcare conditions in overseas countries, the epidemic development around the world is not easy to stop.

The Trump administration has extended the grace period of a trade ban on Huawei through May 15, allowing US companies to continue doing business with the Chinese telecommunications equipment giant.

Why it matters: The reprieve has already been extended four times and allows Huawei’s existing customers to keep purchasing its equipment. However, it is a concession more for rural US carriers than the telecommunications company.

• Many small US telecommunications companies rely on Huawei as a source for equipment because its pricing is considerably cheaper than gear from European suppliers such as Ericsson and Nokia.
• The Chinese company, on the other hand, insists that the extensions “won’t have a substantial impact” on its business. 
• “This decision does not change the fact that Huawei continues to be treated unfairly. This has done significant economic harm to the American companies with which Huawei does business,” the company said in February.

Details: The US Commerce Department announced on Tuesday it was seeking public comment on whether a license allowing US companies to continue doing business with Huawei should be further extended, and that it had extended the license through May 15 to provide an “opportunity for public input.”

• The 45-day extension announced in February is due on April 1. The department said it allowed rural telecom companies “the ability to continue to temporarily and securely operate existing networks while they identify alternatives to Huawei for future operation.”
• Huawei declined to comment.

Context: The Commerce Department added the company to an “Entity List” on May 16, which bars American companies from selling or purchasing with the firm without government approval.

• The department gave the company a 90-day grace period soon after the ban was imposed in May. The reprieve was later extended in August, November, and then in February.
• In November, the US Federal Communications Commission voted to ban US carriers from receiving federal subsidies when purchasing equipment from Chinese telecom equipment makers Huawei and ZTE.

Huawei is testing a new search app similar to Google for its smartphone ecosystem in a bold new step to further challenge the US search giant on its home turf.

Why it matters: The Chinese telecom and smartphone giant has been working on replacing all Google apps and services for its in-house Huawei Mobile Service (HMS) framework on Android phones.

• The world’s second-largest smartphone vendor is banned from using Google products on handsets which have launched after May because of a US trade blacklist.
• The Shenzhen-based company debuted in Europe last month a phone with HMS pre-installed. Instead of using Google Play, the buyers will have to use the company’s App Gallery to download apps.

Details: Huawei is recruiting users in the UAE to test its new Huawei Search app, according to a forum post published on Feb. 26 on the company’s website.

• “We are excited to announce the upcoming launch of the Huawei Search app and invite our UAE users to participate in our user beta test,” the company said in the post.
• The app allows users to search the internet for webpages, videos, news articles, and images, according to XDA Developers, which first reported the beta test.
• The search service is operated by Aspiegel Limited, a subsidiary based in Ireland, according to the app’s user agreement. Aspiegel’s website describes it as a mobile service provider for Huawei device users in Europe, Canada, Australia, and New Zealand.
• However, it is unclear whether the company developed the search engine from scratch or it used a third-party search service. According to the XDA story, the search app’s Privacy Statement says users have the “right to request delisting of a search result,” which may imply that it is not a third-party search engine.
• Huawei declined to comment when contacted by TechNode on Tuesday. 

Context: Citing security reasons, Google last month warned users against loading its apps through unofficial channels to new Huawei devices made available to the public after the trade blacklist.

• Last month, the company released a new version of HMS, adding capabilities such as Quick Response (QR) code extraction, near-field communication (NFC), and identity authentication.
• HMS provides mobile applications corresponding to Google offerings. They include Huawei App Gallery, a mobile wallet, a video-streaming platform, and a music app.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, the guys welcome Technode’s Wei Sheng to discuss the continued US-China tech decoupling, and how Huawei is attempting to succeed in Europe without access to Google Play services. James and Elliott also look at how the COVID-19 coronavirus outbreak has impacted China’s tech giants thus far.

Please note, the hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Luckin Coffee

Links:

• TechNode Newsletters
• Huawei coverage on TechNode

Guest:

• Wei Sheng – @weishengn,

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Editor

• Peter Isachenko

Podcast information:

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• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

A factory of iPhone assembler Foxconn in central China is reportedly offering bonuses of up to RMB 7,000 (around $996) to each new recruit in an effort to lure workers back to plants and restore normal production levels.

Why it matters: The Taiwanese contract manufacturer is struggling to resume production in China after the deadly Covid-19 virus stopped millions of migrant workers from returning to work after the Spring Festival holiday.

• Officials have also urged factories to restart operations. Local governments and enterprises have been sending trains, buses, and planes to help workers travel back to manufacturing hubs such as Shenzhen and Dongguan in Guangdong province.
• Delays in Foxconn’s production, a key manufacturer for Apple, Huawei, Amazon, Google, and many others, are likely to affect supply chains for several major electronics brands.

Details: Foxconn’s main iPhone assembly factory in Zhengzhou in central Henan province is offering RMB 7,000 as an incentive to new workers who meet certain requirements, Chinese business news site Star Market Daily reported on Sunday.

• New workers will have to clock in to work for more than 35 days to receive RMB 3,000 and more than 60 days to receive the remaining RMB 4,000, according to the report, citing an anonymous source working at a recruitment agency for the Foxconn plant.
• The report said that there are currently around 20,000 to 30,000 workers working in the plant. At its peak, the plant’s workforce numbered nearly 450,000 to meet iPhone demand, Chinese media reported.
• Foxconn, formally known as Hon Hai Precision Industry Co Ltd., declined to confirm the hiring bonuses, saying that it “does not comment on operation details of specific plants” when contacted by TechNode on Tuesday, citing a company policy.
• The company said in a statement to TechNode that it is “closely cooperating with local governments’ call to resume operations” and is organizing workers to go back to work.

Context: China is pushing people to get back to work as the “world’s factory” tries to balance containing the Covid-19 outbreak that has killed more than 2,600 people and offsetting the hit to its economy.

• President Xi Jinping has called for local governments to “continue to make unremitting efforts in various prevention and control work and resume work and production in an orderly manner,” according to state media Xinhua.

Huawei launched an upgrade to its foldable smartphone on Monday, putting on offer for overseas users its proprietary ecosystem to replace the Google app and services it has been banned from.

Why it matters: In launching its self-developed app ecosystem to users outside of its home turf, the Chinese tech giant is ratcheting up its competition with Google in the Android service market. It has stepped up efforts to lure users and developers to switch to its alternative to the Google Mobile Services (GMS) framework, which it lost access to in May.

• The world’s second-largest smartphone maker has repeatedly said that it will not abandon the Android mobile operating system, which runs on most of its smartphones. But without Google, it has to develop alternative offerings for its phones.
• The company’s in-house replacement, known as Huawei Mobile Services (HMS), provides mobile applications corresponding to Google offerings such as the Play store, YouTube, and Google Maps.

Details: Huawei launched the Mate XS in an event live-streamed from Barcelona. The new model is an upgrade of the Mate X phone that it showcased last year which features a flexible screen that can fold into a 6.6-inch smartphone and unfold into an 8-inch tablet.

• The Mate XS improves upon its successor with a more durable screen and hinge mechanism, Richard Yu, CEO of Huawei’s consumer business group, said on Monday.
• The EUR 2,499 (around $2,714) device runs the HMS core which provides apps through Huawei’s App Gallery, said Yu.
• The new model will come with a feature akin to WeChat’s mini program. The feature, known as Quick App, will allow users to load apps in second without downloading them from the app stores, according to Yu.
• The company also announced a $1 billion subsidy scheme to boost its global developer program. “We welcome every developer worldwide to join HMS,” said Yu.

Context: Google has banned Huawei from using GMS on new phones as a result of a US trade ban imposed in May.

• Citing security reasons, Google on Saturday warned users against loading its apps through unofficial channels to new Huawei devices made available to the public after the trade blacklist.
• Huawei has teamed up with Xiaomi, Oppo, and Vivo to form an alternative to Google’s Play store to distribute Android apps to users outside China.
• Last month, Huawei released a new version of HMS, adding capabilities such as Quick Response (QR) code extraction, near-field communication (NFC), and identity authentication.